oint venture is likely to be determined by a number of factors including size of enterprise, the expected length of the venture, the identity and location of the entities and the objectives of the participants.
The reason behind this strategic alliance between the companies is not a single one in fact there are many. Companies engage in these activities to benefit more and reduce the risk involved with competition and failure. Here are a few advantages which the companies seek in order to maintain growth and expansion due to a Venture.
By forming a joint venture a company can easily expand their business and could possibly cover more market share in the market. This is because the company has more resources, greater capacity, a better distribution channel
A joint venture also makes a company more flexible because a joint venture are formed for a limited life span and also it only covers part of company’s processes, therefore joint ventures limits both the company’s commitment and the business exposure in the existing market.
Since different businesses have different size of business, therefore by forming a joint venture with a small business with a larger business the smaller business is not able to invest or bring in more assets into the venture as compare to the larger business, this results in an imbalance in the joint venture.
A simple and easy to form venture is a partnership. It is the relation which exists between persons carrying on a familiar business. There are also certain mixtures of mediums or arrangements, such as limited liability partnership. However tax and commercial factors may sometimes lead to the use of an unincorporated system, e.g. a partnership or limited partnership, the stream of ventures is mostly between companies or those entities which are recognized well.
The simplest form of association for joint ventures is an agreement under which the participants consent to associate as autonomous contractors rather than shareholders