A joint venture, sometimes abbreviated “JV,” is an agreement between two businesses to share the profit and expenses of a common business activity. The businesses involved effectively form a partnership under a joint venture agreement, sharing all fortune or misfortune experienced, and they also agree to share a portion of their current knowledge, assets, and other resources in aim of the goal or goals they are trying to achieve. This is often useful for two companies that wish to proceed together on common efforts without actually merging, which can be a complicated, expensive, and sometimes harmful procedure. Joint ventures don’t always need to be between two businesses. Non-profits, individuals, and sometimes government entities can cooperate in a joint venture. Joint ventures can be partnerships, corporations, limited liability companies, and other types of business organizations—this largely is based on taxation and liability issues.
Joint ventures are often used to bring together two companies that are skilled in different areas, as a way of using common and unique skill sets and areas of expertise to the advantage of both parties. One major example in modern times is that of petroleum producers, in which there is often one company that is domestic and the other foreign. Together, the domestic company is able to allow the foreign one access to resources, connections, and contract relationships it would not otherwise be able to use. Such entities usually negotiate short-term agreements, lasting only a few years before they fall apart.
A joint venture allows two parties to cooperate in their commonalities, but there can also be risks and other problems involved. Joint ventures are regulated by federal law, and their income tax is determined in the same way it is for partnerships.
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