{"id":13667,"date":"2021-11-15T19:16:06","date_gmt":"2021-11-15T19:16:06","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?post_type=finance-dictionary&#038;p=13667"},"modified":"2024-10-14T20:26:41","modified_gmt":"2024-10-14T14:56:41","slug":"what-is-a-joint-venture","status":"publish","type":"finance-dictionary","link":"https:\/\/www.5paisa.com\/finschool\/finance-dictionary\/what-is-a-joint-venture\/","title":{"rendered":"Joint Venture"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"13667\" class=\"elementor elementor-13667\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-5cf01523 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"5cf01523\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-6a6ca6ef\" data-id=\"6a6ca6ef\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-7ec17644 elementor-widget elementor-widget-text-editor\" data-id=\"7ec17644\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p class=\"MsoNormal\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">When commercial enterprise combines their resources to gain a tactical and strategic advantage in the market by contract, then it is known as a joint venture (JV). Companies often enter into a joint venture to pursue specific projects. The JV may be a new project with similar products or services, or it may involve creating an entirely new firm with different core business activities.<\/span><\/p><p class=\"MsoNormal\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">A contract between companies is signed to kick off a JV between all concerned parties. The profit and loss from the venture are shared by the participants.<\/span><\/p><h2 class=\"MsoNormal\"><b>Types of joint ventures<\/b><\/h2><p class=\"MsoNormal\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">There are two major types of joint venture that two or more companies might participate in. These joint ventures might affect one particular product or an entire product or service line.<\/span><\/p><ul><li class=\"MsoNormal\"><b style=\"text-indent: -18pt;\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">Personnel-based joint venture<\/span><\/b><\/li><\/ul><p class=\"MsoNormal\" style=\"margin-left: 18pt; padding-left: 40px;\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">This type of partnership covers both the people themselves and the expertise they bring to the table. Several staff members from companies X and Y are placed on a project.<\/span><\/p><ul><li class=\"MsoNormal\"><b style=\"text-indent: -18pt;\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">Equipment-based joint venture<\/span><\/b><\/li><\/ul><p class=\"MsoNormal\" style=\"margin-left: 18pt; padding-left: 40px;\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">This type of venture involves technology or machinery. For example, company X lacks the manufacturing technology to produce its new Displays line. It partners with company Y, which has the necessary equipment but lacks Glass. The advantages of a joint venture agreement in this example are clear: the collaboration allows company to create its desired innovation without an outlay of capital, while company Y gains a percentage of profits without incurring development costs.<\/span><\/p><h2 class=\"MsoNormal\"><strong>Joint venture examples<\/strong><\/h2><p class=\"MsoNormal\">HAL has JVs with Rosoboron export, Aviazap chast and Mikoyan-Gurevich (MiG)\u00a0 of Russia, British Aerospace and Rolls Royce Holdings Ltd of UK, Elbit Systems, Israel, Merlin-Hawk and Edgewood Ventures of the USA, Snecma of France,\u00a0<\/p><p class=\"MsoNormal\">Some other examples;<\/p><p class=\"MsoNormal\">Vistara + Singapore Airlines<\/p><p class=\"MsoNormal\">PNB + MetLife<\/p><p class=\"MsoNormal\">Starbucks +\u00a0Tata<\/p><h2 class=\"MsoNormal\"><b>What are the risks of joint ventures?<\/b><\/h2><p class=\"MsoNormal\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">No business venture comes without risk. The main risk of a joint venture is that when something goes wrong, both parties are held accountable, rather than only the party who was at fault. While most businesses entering joint venture agreements are limited liability companies (small businesses), each participant is equally responsible for legal claims arising from the joint venture, regardless of its level of involvement (or profit) from the venture. <\/span><\/p><p class=\"MsoNormal\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">So are joint ventures 50:50? Not necessarily. Each party retains ownership of their property, and depending on the terms of the joint venture contract, you and your partners may contribute resources unevenly. This can lead to problems if the profit-sharing arrangement doesn\u2019t adequately compensate one side or the other.<\/span><\/p><h2 class=\"MsoNormal\"><strong>How do taxes work in a joint venture?<\/strong><\/h2><p class=\"MsoNormal\"><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">What is a joint venture from a tax perspective? In India a JV is assessed in the status of an AOP (association of persons). If the venture operates as a separate business entity, it will pay income taxes just like any other type of business. In the agreement, the parties involved specify how they will split profits and losses and how they will pay any taxes that are due. <\/span><\/p><h2 class=\"MsoNormal\"><b>Advantages of joint ventures-<\/b><\/h2><p class=\"MsoListParagraphCxSpFirst\" style=\"margin-left: 39.3pt; mso-add-space: auto; text-indent: -18.0pt; mso-list: l0 level1 lfo1;\"><!-- [if !supportLists]--><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">1.<span style=\"font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 7pt; line-height: normal; font-family: 'Times New Roman';\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/span><!--[endif]--><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">Shared expenses (more resources) &#8211; each party shares a common pool of resources, which can bring down costs on an overall basis.<\/span><\/p><p class=\"MsoListParagraphCxSpMiddle\" style=\"margin-left: 39.3pt; mso-add-space: auto; text-indent: -18.0pt; mso-list: l0 level1 lfo1;\"><!-- [if !supportLists]--><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">2.<span style=\"font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 7pt; line-height: normal; font-family: 'Times New Roman';\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/span><!--[endif]--><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">Shared investment (cost saving) &#8211; each party in the venture contributes a certain amount of initial capital to the project, depending upon the terms of the partnership arrangement, thus alleviating some of the financial burden placed on each company. <\/span><\/p><p class=\"MsoListParagraphCxSpMiddle\" style=\"mso-add-space: auto; text-indent: -18.0pt; mso-list: l0 level1 lfo1; margin: 0cm 0cm 0cm 39.3pt;\"><!-- [if !supportLists]--><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">3.<span style=\"font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 7pt; line-height: normal; font-family: 'Times New Roman';\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/span><!--[endif]--><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">Barriers to competition &#8211; one of the reasons for forming a joint venture is also to avoid competition and pricing pressure. Through collaboration with other companies, businesses can sometimes effectively erect barriers for competitors that make it difficult for them to penetrate the marketplace.<\/span><\/p><p class=\"MsoListParagraphCxSpLast\" style=\"margin-left: 39.3pt; mso-add-space: auto; text-indent: -18.0pt; mso-list: l0 level1 lfo1;\"><!-- [if !supportLists]--><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">4.<span style=\"font-variant-numeric: normal; font-variant-east-asian: normal; font-stretch: normal; font-size: 7pt; line-height: normal; font-family: 'Times New Roman';\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/span><!--[endif]--><span style=\"mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; color: #404040; mso-themecolor: text1; mso-themetint: 191;\">Technical expertise and know-how &#8211; each party to the business often brings specialized expertise and knowledge, which helps make the joint venture strong enough to move aggressively in a specified direction.<\/span><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>When commercial enterprise combines their resources to gain a tactical and strategic advantage in the market by contract, then it is known as a joint venture (JV). Companies often enter into a joint venture to pursue specific projects. The JV may be a new project with similar products or services, or it may involve creating &#8230; <a title=\"Joint Venture\" class=\"read-more\" href=\"https:\/\/www.5paisa.com\/finschool\/finance-dictionary\/what-is-a-joint-venture\/\" aria-label=\"Read more about Joint Venture\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":13668,"parent":0,"menu_order":309,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"class_list":["post-13667","finance-dictionary","type-finance-dictionary","status-publish","format-standard","has-post-thumbnail","hentry","finance-dictionary-terms-j"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/finance-dictionary\/13667","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/finance-dictionary"}],"about":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/types\/finance-dictionary"}],"author":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/comments?post=13667"}],"version-history":[{"count":16,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/finance-dictionary\/13667\/revisions"}],"predecessor-version":[{"id":62512,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/finance-dictionary\/13667\/revisions\/62512"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media\/13668"}],"wp:attachment":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media?parent=13667"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}