“Access to new markets and distribution networks, increased capacity, sharing of risks and costs (ie liability) with a partner, access to greater resources, including specialised staff, technology and finance”
A joint venture is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to access a new market, particularly emerging markets; to gain scale efficiencies by combining assets and operations; to share risk for major investments or projects; or to access skills and capabilities.
A JV can be brought about in the following major ways
- Foreign investor buying an interest in a local company
- Local firm acquiring an interest in an existing foreign firm
- Both the foreign and local entrepreneurs jointly forming a new enterprise
- Together with public capital and/or bank debt
A Certificate of Incorporation or the Articles of Incorporation is a document required to form a corporation in India
The Articles of Incorporation is again a regulation of the directors by the stock-holders in a company.
By its formation the JV becomes a new entity with the implication
- that it is officially separate from its Founders, who might otherwise be giant corporations, even amongst the emerging countries
- the JV can contract in its own name, acquire rights (such as the right to buy new companies), and
- it has a separate liability from that of its founders, except for invested capital
- it can sue (and be sued) in courts in defense or its pursuance of its objectives.
On the receipt of the Certificate of Incorporation a company can commence its business.
“Joint venture in food industries help to increase in economy and GDP of a country to the progress in country’s employ-ability”
What Functions Best for Food
“Joint venture” can mean many things. But the structure of the deal is one of the most essential elements of doing it right. The needs of the parties will help identify what is best for everyone, such as
A contractual relationship not constituting a separate legal entity
Some joint ventures may take the simple form of a revenue sharing agreement, a lease, a supply agreement or some other agreement not constituting an actual legal entity. Often these structures are best for simple ventures with a very limited purpose and short duration. One potential drawback is that, in certain jurisdictions, depending on the extent of the parties’ relationship, a court could impose partnership duties on the parties, despite the parties exclaiming any partnership relationship
A general partnership
The parties may agree to create an unincorporated association to operate a business as co-owners. One advantage of this approach, in the United States, is that no governmental filing is required for a general partnership. However, unlike some of the other legal entities described below, the partners of a general partnership are not afforded the luxury of limited liability.
A limited partnership
A limited partnership is a partnership with at least one limited partner and one general partner. A limited partnership is formed by filing a certificate of limited partnership with the appropriate governmental agency. While the general partner of a limited partnership is liable to creditors of the partnership, the limited partners are not. The use of limited partnerships have given way to the newer, but more flexible limited liability company (see below) for ventures where the parties and the operations are solely in the United States. However, foreign countries’ tax treatment of U.S. limited partnerships may be more beneficial or certain than that of limited liability companies. As a result, limited partnerships are still relevant in the international context.
A limited liability company
For the last decade or so, the most common legal entity in the United States for forming a joint venture is a limited liability company (“LLC”). An LLC is an unincorporated organization formed by filing a certificate of formation or articles of organization under a state limited liability company act. None of the members of an LLC is liable to a third party for the obligations of the LLC solely by reason of being a member. The true advantage of an LLC in the joint venture context is its flexibility. State laws generally permit joint ventures to agree on whatever provisions they desire within the context of an LLC governing document (i.e., the operating agreement.
Joint ventures often enable growth without having to borrow funds or look for outside investors. You may be able to
- use your joint venture partner’s customer database to market your product
- offer your partner’s services and products to your existing customers
- join forces in purchasing, research and development
Another advantage of a joint venture is its flexibility. For example, a joint venture can have a limited lifespan and only cover part of what you do, thus limiting the commitment for both parties and the business‘ exposure.