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Things to Consider Prior to Forming a Joint Venture

By: Vlad Ehrsam

A joint venture is the formation of a single entity, by two or more separate businesses, control of which is shared by the parties involved. The ¡§parent¡¨ companies get to keep their own interests outside of the venture but within it, everything is shared. A successful joint venture can be a very lucrative business proposition.

An alliance created with an eye on strategy, your joint venture partners should complement your business activities. They should capable of providing a complementary service like distribution, finance, technology or personnel. For example, you could form a venture with a company with distribution capabilities if you need one and offer your finance capabilities in return.

Joint ventures should be a win-win situation for all parties concerned. Everyone should benefit. However, a joint venture can go terribly wrong if the parties involved don't share the same vision for the company. It is therefore imperative that you cover all your bases before signing on the dotted line.

Know Who Your Business Associates Are

Before entering into any business relationship, it is important to know whom it is you are dealing with. This is especially in joint ventures, as your reputation becomes entwined with that of your partners in the venture. Verify information with third parties, and make sure that there is a strong basis for trust. Also, ensure that the company is capable of holding up its end of the deal.

Business Plan Development

The business plan for your joint venture should be drawn up by all parties involved. The plan should include clearly defined goals for the venture as well as benchmarks for defining success. An exit strategy that is acceptable to all parties as well as terms for winding up the venture should also be incorporated. There should be a contingency plan in case for some reason the venture is dissolved before the specified date.

Appropriate Structure

You can register your joint venture in a variety of different ways. A Limited Liability Corporation is one option as are other types of new businesses. Many fast growing companies choose to register their joint ventures as strategic corporate partnerships. Investigate all your options before making a decision.

Property and resources

It is important to explicitly understand exactly what resources and property (appreciated or depreciated) are available from each member of the joint venture. Which resources will each company make available? Is there a specific use of one party's property? Proper understanding of availabilities will forestall a weakening of the economics of the deal later on down the road.

Special allocations

If you need to make special allocations such as special gain or loss, income and deductions, they should be identified in advance and provisions made. For example, in case of a loss situation, some of it will have to be divided amongst the partners. If a partner will be providing his expertise or any specific services, his compensation must be worked out beforehand.

If you can't reach an understanding with your partner on the above issues, then perhaps you had better look elsewhere. However, if you see eye to eye with your partner on all issues, your joint venture is likely to flourish and pay handsome dividends.

Article Source: http://www.simplepetcare.com/pet-articles

Vlad Ehrsam runs a very interesting website at Full Info on Business, visit there today for the latest Business advice, and why not sign up for the free Business newsletter.
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