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Everything you need to know about a joint venture

A joint venture is a temporary strategic association (short, medium or long term) of organization, a group or alliance of persons or groups of companies that maintain their individuality and legal independence but act together under the same direction and rules, to carry out a certain commercial operation, where investments, control, responsibilities, personnel, risks, expenses and business benefits are distributed.

The joint venture is applied when two or more companies take the decision to enter a new market or develop a business during a certain period of time. The purpose will be to obtain the highest possible profits from this union or association. Recently, there have been many recurrent alliances between different startups.

Our specialists in commercial law recommend companies to apply a Joint Venture contract to work in the same direction and respect the rules. The Joint Venture is a joint goal that will represent benefits for the companies that collaborate, either by sharing the work team, costs, investments, control and responsibility, etc.


What types of joint ventures are there?

There are many different types of joint ventures:

- Projects. Their purpose is to develop a project with a time limitation.

- Investment (BOT: Build/Operate/Transfer). The objective is to create a company that will be able to develop certain activities over time.

- Concentrative type: The companies participating in the joint venture decide to centralize their elements or business cores in the resulting new company.

- Co-investment: This is characterized by the contribution of money or goods made by each of the companies. The purpose is to obtain greater profits than could be achieved individually, such as the incorporation of new markets and economies of scale.

- Strategic alliances: In these joint venture models, no capital contribution is required. What is added is the contribution of the characteristics of each company. These characteristics are made available to all contractors.

- The companies participate in the same economic phase.

- The companies are in different economic phases.

- The companies have different activities.

- Equity Joint Ventures (EJV), also known as corporate. The agreement involves the creation of a new company. The latter has its own legal personality with respect to the participating companies.

- Contractual or Non-Equity Joint Ventures (CJV): Companies collaborate without creating a new company. In other words, they carry out activities in common.


What steps must be taken to carry out a successful Joint Venture contract?

As our commercial law lawyers point out, first of all, a specific project must be established, a contract must be signed with clauses that help protect the collaboration and the partners, the exact contribution of capital by each of the parties must be defined, joint activities must be designed, a common roadmap must be specified, the investment budget must be established and designed, the duration must be controlled, a group of human resources must be established, and finally the administrative processes and operational processes must be defined.

 
What are the advantages of creating a joint venture?

The main advantages are to share the risks, costs and in turn decrease them, produce a more efficient competition, cover new markets or take over one, increase the economic power to operate, access to new resources or economies of scale, give greater opportunities for competition, have the possibility of increasing your competitive advantages, extend the number of customers, save money by sharing operating costs, save money by sharing advertising and marketing costs, save time as a business resource by sharing workload, use a know-how and manage more information and finally gain new business partners.

An advantage from a tax-accounting point of view, is that the contractors could keep independent accounting, although they could also not keep it and only record in their own accounts the operations corresponding to this contract, which allows for ample possibilities to distribute expenses efficiently and obtain profits.

We remind you that at Forcam Abogados our lawyers specializing in commercial law will be able to clarify any doubts you may have in your specific case.