A joint venture agreement is an arrangement where two companies develop a new entity to their mutual benefit. It normally involves a sharing of resources, which could include capital, personnel, physical equipment, facilities or intellectual property such as patents.
A joint venture agreement provides a company with expertise it may not have or may not be willing to invest in acquiring itself. For example, if one company has a combustible material research lab that the venture requires, the company without the lab gains the benefit of an already established lag. There is an element of risk in most joint ventures. Both joint-venture parties share in the risk, such as a financial investment. Should the venture not become profitable, both parties can walk away from the deal losing less than if one company independently invests in the venture. A joint venture also provides a company with a way to exit from a secondary business or to enter a new business with less of a financial commitment if it were to do this on its own.
Forming a successful joint venture effort requires time. Both parties will often come to the potential venture with different goals. The culture of each company may be different and the integration of both cultures may be difficult or take a long time. Another problem could be that one or both parties dont commit enough resources to achieve a successful venture.