Joint Venture
Our team of joint venture and alliance practitioners help our clients create successful commodity trading partnerships
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Do you have a genuine commodity supplier and you want to work with an investor to provide a payment guarantee to buy and sell the product? You may want to consider a business loan or a joint venture.
What is a Joint Venture?
A Joint Venture (JV) is a cooperative enterprise entered into by two or more business entities for the purpose of a specific project or other business activity. The reason for a joint venture is usually some specific project.
Joint Venture
Joint ventures can be informal (a handshake) or formal, and they can be short term or long term. Often the joint venture creates a separate business entity, to which the owners contribute assets, have equity, and agree on how this entity may be managed. The new entity may be a corporation, limited liability company, or partnership.
In other cases, the individual entities retain their individuality and they operate under a joint venture agreement. In any case, the parties in the JV share in the management, profits, and losses, according to a joint venture agreement (contract).
Joint ventures are often entered into for a single purpose – a production or research activity. But they may also be formed for a continuing purpose.
Why Form a Joint Venture?
Businesses form joint ventures for several reasons:
- To combine resources. A bigger entity may have more clout in an industry or more resources to ensure the success of a venture.
- To combine expertise. In commodity trading, one company might have a supplier in one part of a venture while the second company might have funds to invest in another part. For example, Company A might be good at finding a genuine supplier, while Company B has experience creating the resources that’s needed for a venture.
- To make profit. Two companies might consider a joint venture to make profit on selling products that already available in the market.
Examples of Joint Ventures
Joint ventures can combine large and small companies on big and little projects. You can form a joint venture informally with just a handshake, but it’s always best to have something in writing. A joint venture, even if it’s between two small businesses, should have at a minimum this sort of written agreement. All that’s needed to form a joint venture is a written agreement (a contract) between the parties. The agreement should spell out the details of the purpose, how the two (or more) parties share in profits and losses, and how the parties share in making decisions about the joint venture.
The Benefits of Joint Ventures
Any two businesses of any size can work together on a joint project, while still maintaining the rest of their business apart from each other. Some related articles that might give you additional ideas for possible joint ventures.
PLAN YOUR JOINT VENTURE RELATIONSHIP
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Before starting a joint venture, the parties involved need to understand what they each want from the relationship.
Smaller businesses often want to access a larger partner’s resources, such as a strong distribution network, specialist employees and financial resources. The larger business might benefit from working with a more flexible, innovative partner, or simply from access to new products or intellectual property.
Similarly, you might decide to build a stronger relationship with a supplier. You might benefit from their knowledge of new technologies and get a better quality of service. The supplier’s aim might be to strengthen their business from a guaranteed volume of sales to you.
Whatever your aims, the arrangement needs to be fair to both parties.
Commodity Trading JV
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