What Is a Joint Venture

By Joseph King , last updated May 26, 2011

In the highly stressful and competitive financial world, businesses are always looking to minimize risk while increasing efficiency and profitability. One of the ways to do this is through what is called a joint venture. In very general terms a joint venture is an association between two business entities combining services, assets, or expertise while having a joint proprietary interest and sharing profits and losses. A joint venture must be a separate entity from the two partners or companies, have ownership interest with each partner or business, and management involvement by each side. Joint ventures will also involve some type of contractual agreement between the two businesses or people with a clear and limited goal and a specific duration of time.

Joint ventures are formed at all levels of the business world. They range from associations between large corporations, government entities, small and medium sized firms, and even single individuals. Joint ventures are an opportunity to grow corporations or businesses and expand them into new markets. These associations have become wildly popular in international business as companies look to expand around the globe into new international markets.

There are many reasons businesses as well as people form joint ventures, some of which include: sharing risk (especially in larger corporations), economies of scale (to help reduce production costs and depletion of resources), access to new markets (i.e. international markets), combination of services, geographical limitations, need for capital, and barriers to entry into a competitive marketplace. These are just some of the most common reasons for forming joint ventures and mostly apply to larger corporations and businesses; however, they still apply at a certain level in smaller and medium sized partnerships.

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