INSIGHTS

What Is The Joint Venture?

Çiğdem Yıldız

07.03.2023

Joint venture is defined as the gathering of two or more companies that want to continue their business processes in today’s competitive environment, achieve more success, reach their goals more easily and expand the market area. In this business model, two or more businesses or entrepreneurs carry out the business process together by investing in equal or different proportions. Basically, all profits, losses, risks and benefits in this business model vary according to the ratio of the investment in question. The profit and loss ratio of the stakeholder with a high investment rate will also be higher than the other stakeholders.

The main purpose of the joint venture is to carry out a common business process in a competitive environment more harmoniously and efficiently. In addition to this main purpose, entering new or developing market areas, reducing the risk factor in investments, using resources more effectively, reducing costs and increasing production are among the objectives of the joint venture.

What Are The 4 Types Of Joint Venture?

The 4 different types of joint venture are listed below:
● Project-based joint venture: This type of joint venture is one where partners come together to fulfill a specific goal.
● Vertical Joint Venture: It is a type of joint venture where parties at different levels in the same product or service come together in a joint venture.
● Horizontal Joint Venture: It is a type of joint venture in which the parties decide to come together despite being competitors.
● Functional-Based Joint Venture: It is a type of joint venture where partners come together to benefit from each other.

How to Set up a JV?

The structure of each joint venture is determined by the potential partners before the joint venture is implemented. Within the scope of the joint venture, a predetermined structure is established, from who will have how much of a share to what business they will be dealing with. Of course, this structure can also be changed by the decisions to be taken by the partners in the future. Companies operating in different sectors can become partners and expand the existing order by establishing a joint venture instead of investing with large resources to enter each other’s sectors. This situation can sometimes occur within the same sectors. On the other hand, some giant companies may also establish joint ventures with local businesses in certain regions. This would be profitable for both parties. In this way, it is included in an already functioning system without making serious investments. With the increase of capital accumulation with the arrival of new partners, more different potential markets can be entered.
During the preparation of Joint Venture Agreements, all rights and responsibilities of the parties are added to the agreement in detail. In addition to this, it is of great importance to include statements that always guarantee the joint venture, as well as to add restrictive clauses to potential disputes that may arise between the parties. The fields of activity and expertise of each of the stakeholders involved in the joint venture should also be discussed in detail in the contract. All stakeholders are responsible for all kinds of plans and projects to be made within the scope of the joint venture. It is important for the legal security of all parties that will be involved in the joint venture that a confidentiality agreement is signed before the preparation of the Joint Venture Agreements and then a preliminary protocol is signed.

Examples of JVs

Many well-known companies have managed to announce their projects to large audiences by establishing partnerships with other organizations as joint ventures. An example of a joint venture is Google Earth, created by NASA and Google, who joined forces with the joint venture.

Why Would a Firm Enter Into a Joint Venture (JV)?

Some reasons for companies to start a joint venture are given above. For example, avoiding over-investment, making the brand reach its goals more easily, making the company or company grow more easily, and benefiting from the synergy of the company to be partnered with are some of the main reasons for making a joint venture.

What Are the Primary Advantages of Forming a JV?

The joint venture cooperation model offers both financial and operational advantages to companies and entrepreneurs. These advantages of joint venture can be listed as follows:
● The joint venture can be made with a domestic and foreign partner, and in this way, opportunities such as access to advanced technology, effective sourcing and market expansion can be obtained.
● Thanks to collaborating partners, the cost and financial risk ratio in business processes can be reduced.
● As access to needs and resources is faster and easier than other business models, companies can grow faster with a joint venture.
● Companies with the Medium Enterprise Collaboration Model are able to adapt more effectively to change and new opportunities.
● Small and medium-sized enterprises can be protected from the strong and destructive competition in the business world thanks to the joint venture

Does a JV Need an Exit Strategy?

The partnership agreement required for a joint venture should include a planned exit strategy so that all parties are protected when the partnership achieves its goals. In most joint ventures, an exit strategy can take three different forms: a sale of new business, a distribution of operations, or employee ownership. Each exit strategy offers potentially different advantages to the partners in the joint venture and to the conflict. A sale can be a fast track for business partners, but finding the right buyer can be challenging. Taxes become a taxable event when not done directly, but may allow operations to continue well into the future under a new company structure. An employee ownership sale increases productivity and earning potential by transferring the business to existing employees. However, this is often an option for large joint ventures. Regardless of the exit strategy chosen, partnerships in a joint venture can reduce the potential for conflict by clarifying the terms of termination or termination in the joint venture agreement from the outset.


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INSIGHTS

What Is The Joint Venture?

Çiğdem Yıldız

07.03.2023

Joint venture is defined as the gathering of two or more companies that want to continue their business processes in today’s competitive environment, achieve more success, reach their goals more easily and expand the market area. In this business model, two or more businesses or entrepreneurs carry out the business process together by investing in equal or different proportions. Basically, all profits, losses, risks and benefits in this business model vary according to the ratio of the investment in question. The profit and loss ratio of the stakeholder with a high investment rate will also be higher than the other stakeholders.

The main purpose of the joint venture is to carry out a common business process in a competitive environment more harmoniously and efficiently. In addition to this main purpose, entering new or developing market areas, reducing the risk factor in investments, using resources more effectively, reducing costs and increasing production are among the objectives of the joint venture.

What Are The 4 Types Of Joint Venture?

The 4 different types of joint venture are listed below:
● Project-based joint venture: This type of joint venture is one where partners come together to fulfill a specific goal.
● Vertical Joint Venture: It is a type of joint venture where parties at different levels in the same product or service come together in a joint venture.
● Horizontal Joint Venture: It is a type of joint venture in which the parties decide to come together despite being competitors.
● Functional-Based Joint Venture: It is a type of joint venture where partners come together to benefit from each other.

How to Set up a JV?

The structure of each joint venture is determined by the potential partners before the joint venture is implemented. Within the scope of the joint venture, a predetermined structure is established, from who will have how much of a share to what business they will be dealing with. Of course, this structure can also be changed by the decisions to be taken by the partners in the future. Companies operating in different sectors can become partners and expand the existing order by establishing a joint venture instead of investing with large resources to enter each other’s sectors. This situation can sometimes occur within the same sectors. On the other hand, some giant companies may also establish joint ventures with local businesses in certain regions. This would be profitable for both parties. In this way, it is included in an already functioning system without making serious investments. With the increase of capital accumulation with the arrival of new partners, more different potential markets can be entered.
During the preparation of Joint Venture Agreements, all rights and responsibilities of the parties are added to the agreement in detail. In addition to this, it is of great importance to include statements that always guarantee the joint venture, as well as to add restrictive clauses to potential disputes that may arise between the parties. The fields of activity and expertise of each of the stakeholders involved in the joint venture should also be discussed in detail in the contract. All stakeholders are responsible for all kinds of plans and projects to be made within the scope of the joint venture. It is important for the legal security of all parties that will be involved in the joint venture that a confidentiality agreement is signed before the preparation of the Joint Venture Agreements and then a preliminary protocol is signed.

Examples of JVs

Many well-known companies have managed to announce their projects to large audiences by establishing partnerships with other organizations as joint ventures. An example of a joint venture is Google Earth, created by NASA and Google, who joined forces with the joint venture.

Why Would a Firm Enter Into a Joint Venture (JV)?

Some reasons for companies to start a joint venture are given above. For example, avoiding over-investment, making the brand reach its goals more easily, making the company or company grow more easily, and benefiting from the synergy of the company to be partnered with are some of the main reasons for making a joint venture.

What Are the Primary Advantages of Forming a JV?

The joint venture cooperation model offers both financial and operational advantages to companies and entrepreneurs. These advantages of joint venture can be listed as follows:
● The joint venture can be made with a domestic and foreign partner, and in this way, opportunities such as access to advanced technology, effective sourcing and market expansion can be obtained.
● Thanks to collaborating partners, the cost and financial risk ratio in business processes can be reduced.
● As access to needs and resources is faster and easier than other business models, companies can grow faster with a joint venture.
● Companies with the Medium Enterprise Collaboration Model are able to adapt more effectively to change and new opportunities.
● Small and medium-sized enterprises can be protected from the strong and destructive competition in the business world thanks to the joint venture

Does a JV Need an Exit Strategy?

The partnership agreement required for a joint venture should include a planned exit strategy so that all parties are protected when the partnership achieves its goals. In most joint ventures, an exit strategy can take three different forms: a sale of new business, a distribution of operations, or employee ownership. Each exit strategy offers potentially different advantages to the partners in the joint venture and to the conflict. A sale can be a fast track for business partners, but finding the right buyer can be challenging. Taxes become a taxable event when not done directly, but may allow operations to continue well into the future under a new company structure. An employee ownership sale increases productivity and earning potential by transferring the business to existing employees. However, this is often an option for large joint ventures. Regardless of the exit strategy chosen, partnerships in a joint venture can reduce the potential for conflict by clarifying the terms of termination or termination in the joint venture agreement from the outset.