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Understanding what a joint venture is and how it works

If you were fortunate enough to have been born with the entrepreneurial gene, then you're probably the type of individual that's constantly coming up with more ideas you want to execute than you have time in the day to do it. If this description describes you quite well, then you might find joint ventures to be ideal for you.

Joint ventures describe business arrangements whereby an individual or entity with some type of business idea collaborates with another party to get the word out about it. Oftentimes, the party that is collaborated with is perceived to have a unique skill set necessary to either market or sale a product.

The two respective entities that come together to form a joint venture often form a new, distinct business entity to do so. In situations in which they do, the individual entities both share equity, make management decisions for it and contribute assets to it. Joint ventures can take on a variety of different formations including as corporations, partnerships or limited liability companies.

With parties that don't wish to formalize their partnership by creating a whole new business entity, it's also possible to operate under a joint venture agreement. The benefits of adopting this type of agreement is that it allows each party to preserve their own individuality.

Even under this arrangement, the different entities that subscribe to it still share in co-managing the effort. They also share in profits and losses. How things are handled should be clearly spelled out in the joint venture agreement between the two of you.

Setting up a joint venture is relatively simplistic. It involves the two parties sitting down at the table together to draft a written contract. The agreement should cover some important topics such as why the joint venture is being developed. It should cover how profits, losses and management decisions will be handled as well.

Although easy to set up, there are tax and legal implications that come with the way this type agreement is worded. You should consult a Phoenix business formation attorney to ensure your interests are protected.

Source: The Balance, "What is a joint venture and how does it work?," Jean Murray, accessed Sep. 08, 2017

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