On many occasions, clients contact our office seeking counsel on a new joint venture they are considering. It is critical to understand the various terminology and types of joint ventures. A joint venture involves two or more business entities joining together in order to form a new business entity structured to conduct specified business goals. Those parties to the joint venture will carry the risk, rewards, and ownership of the business according to the terms set upon the creation of the joint venture. The co-venturers, the members of the joint venture, define the purpose of the venture according to whether it is being created for a specific project or time period. There are four central types of joint ventures, which we will review in more detail here.
Overview of the Four Types of Joint Ventures
The most common type of joint venture is the project joint venture. In a project joint venture, the co-venturers come together in order to accomplish a particular goal. The defining characteristic of a project joint venture is that it is focused on a defined project. A project joint venture will end upon the completion of the project itself.
Another type of joint venture is the functional joint venture. In the case of a functional joint venture, the co-venturers come together because they each bring expertise in some business area or function. The joint venture is the cementing of a symbiotic relationship between the co-venturers where all can enjoy the benefits the others bring to the table. Thus, a functional joint venture is defined by the parties to the joint venture coming together in order to gain mutual benefits generated by the synergy of the co-venturers.
There is also the vertical joint venture to consider. It is called a vertical joint venture because the relationship is between two entities within the same supply chain. In other words, the co-venturers are at different levels of development of the same product. A vertical joint venture is usually established where one of the co-venturers produces a certain kind of raw material that is specialized in nature. Should an entity wish to procure a product that requires this raw material, it may wish to establish a joint venture in order to help ensure it has access to the necessary material. Furthermore, working in a co-venture with an entity in the supply chain can help provide a level of privacy for the whole arrangement.
Last, but not least, there is the horizontal joint venture. A horizontal joint venture is defined by competitors coming together to work on a particular project, which is usually the production of certain goods or services. Most commonly, horizontal joint ventures arise between entities that are in the same product or service market, but are in different geographical locations. If a certain entity is looking to expand into a different locale, partnering with a business in the local market can help with research into the local distribution network.
New York City Business Law Attorney
Are you considering a joint venture? It can be a great way to accomplish business goals, but such an arrangement should be approached with care and consideration. Talk to the team at Woods Lonergan about the benefits of a joint venture and how you can protect your interests when entering into such a business relationship. Contact us today.