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Trilegal will be the optimal choice for a better understanding on Joint Ventures and your legal partner for the process.
Numerous business undertaking occur globally on a daily basis, people tend to leverage the opportunity they foresee from existing problems to gain financial success and that is what business is all about. However, cases exist where new establishments or even a successfully operated business houses wobble along the way and this may be due to unaccommodating of new technologies, inefficient team, less managerial skills, financial instability etc., fret not Joint Venture might be the right choice to opt for.
Joint Venture is a collaborative approach amidst two or more business entities for the purpose of embarking on a new business activity. Joint Venture (JV) sees to utilizing resources from all associated entities to accomplish the planned out goals. Each participant in a Joint Venture is solely responsible for profits and losses and costs incurred. Joint Venture can be formed amongst existing business entities, corporations etc. for production of goods on a larger scale, research, continuation of the same business but with higher capital and advancement in all aspects. A large company and a small company can also seek for a Joint Venture approach for accomplishment of certain project. Entities in a Joint Venture contribute their assets and agree upon the dividing of income and expenses since each entity in a Joint Venture could be group of individuals, individual, companies or corporations; a contract is set forth with proper outline of resources, assets etc. that each entity will bring into the venture. A Joint Venture may not desirably be amidst two companies with same genre of work but can be between two companies with different line of work, venturing together to come up with a new product/service. For e.g. During an investment summit held in Kathmandu, Nepal in 2019, CG (Chaudhary Group) of Nepal confirmed a joint venture with Turkcell for 5G mobile network service in Nepal, Turkcell is a
Istanbul based company. A company that is looking to expand its business globally by breaking into new markets also opts for Joint Venture. A global example of Joint Venture is the collaboration of Sony (Japan) and Ericsson (Sweden) in the early 2000s to be world leader in mobile phones, however after years of operation the venture was solely owned by Sony.
A Joint Venture may last forever or only for a short period of time for accomplishing certain outlined goals. Why is Joint Venture beneficial for all associated entities?
Expertise: A company into Information Technology (IT) may have a pool of expert technical gurus but lack the marketing skill required in the market; collaborating with a company that excels in marketing can be beneficial for both parties.
Resources: Combining of resources from two different companies to come out with new product/services will be increase the output compared to doing it solely as a separate entity.
Financial: An entity with limited capital at disposal may face hurdles in expansion of their business but with a partner to collaborate can certainly uplift the existing business to a new dimension as a whole.
Why Joint Venture?
Sharing: If a project agreed upon by two entities fail, the costs of failure will not be burdened upon on you but both parties involved will be equally liable.
Learning: Joint Venture brings in personnel from all sectors of work; hence one can seek this as an opportunity to learn more.
Success: A Joint Venture provides a better chance of success since two entities are working on the same project and will input all available resources at disposal.
Network: Working with a new company will eventually expand your network and personal relation to a next level.
Advertisement/Marketing: Costs to advertise/market a product/service will now be shared, hence reducing the financial burden.
If two or more entities agree upon the establishment of a new entity or continuation of the existing business, a proper detailed contract needs to be signed upon with legal assistance. Enlisted are few of the terms that need to be within the agreement:
Joint Ventures’ management structure and associated members.
Mutual Bank Account.
Percentage declaration of ownership for each entity involved.
Joint Venture these days can be seen amidst global companies trying to penetrate into emerging market will collaboration with local businesses. This increases their distribution network and at the same time, brings in expertise and financial growth in an emerging nation. However, there are countries having restrictions of foreigners entering their market, hence Joint Venture being the only option. Joint Venture is usually beneficial for aspiring companies with great ideas but lack the proper resources, capital and knowledge to sustain in the market, hence forming a Joint Venture sounds like a probable solution.
Every opportunity created or every approach taken has its set of drawbacks as well, and Joint Venture is no exception. Joint Venture too comes along with a list of disadvantages that one needs to understand before embarking on the route.
Disadvantages of Joint Venture:
Restrictions: An individual will lose their sense of flexibility when working under a Joint Venture since the time to accomplish a certain task is predefined.
Cultural Clash: A person on working on behalf of a USA based company will certainly face a hard time dealing with a newly ventured Japanese company since the cultures, beliefs amongst these two nations do not quite match.
Communication: Joint Venture involves two or more companies; hence there can be severe lack of communication between partners.
Partners: Each individual has a different approach to different thing; hence the operation can be quite difficult.
Clash of Expertise: An individual with certain expertise in marketing will have a hard time dealing with an individual with no sense of marketing but is an expert in IT, hence clash is inevitable.
If this article resonate your thoughts and needs then Trilegal will be the optimal choice for a better understanding on Joint Ventures and your legal partner for the process.