Joint Ventures - A Brief Explanation

As chief financial and strategy officer at RFaxis, Inc., Keyvan Samini has led a variety of business restructuring negotiations. In doing so, Keyvan Samini has drawn on diverse experience in joint venture proceedings.

A joint venture allows two companies to benefit mutually by sharing resources, risks, and potential rewards. Most such agreements take place in the pursuit of a particular goal and are time-limited, unlike the more multifaceted partnerships that assume indefinite relations. The time frame of the agreement, and whether there is a particular specified end date, depends on the goal of the venture.

In most cases, the joint venture does not involve the creation of a new business entity. The two companies instead elect to operate the venture under a separate joint venture contract that governs all operations and finances related to joint operations.

Other joint ventures create a separate entity to which each partner contributes. Partners then become shareholders and collaborate on the management of this new organization. Each partner organization must also agree on the distribution of profits and responsibilities for losses.

Whether or not a joint venture creates a new company, the sharing of resources can give each party a stronger financial base and increased capacity. The venture may also allow both organizations in partnership to expand territory and market coverage without the expense of new documentation and bases of operations. In order to work, however, the agreement must offer benefits to both parties and help each to progress toward overall business goals.