In simple terms, a joint venture is a business arrangement wherein two or more parties work together and contribute the resources for the same. This arrangement is made for a specific project, task, or business activity for a specific period of time. After the project is completed and the desired results are achieved the joint venture comes to an end.

In a joint venture, each party is responsible for the profits, losses, and all the costs incurred during that project. Although a joint venture is similar to a partnership, however, unlike a partnership a joint venture has a separate legal entity, that distinguishes the venture from its participants.

A joint venture can take on any legal structure, be it corporations, partnerships, or even Limited Liability Companies, all of them can be used to form a joint venture. Although joint ventures are formed for a specific time-bound purpose, they can be made for a continuing purpose. A joint venture could also comprise of a small company with a huge business company to take one or many projects.

There are three main reasons why joint ventures are formed:

1. Combined resources: A joint venture carries a major advantage of combined resources from both parties. This helps the parties to fulfil what they lack in. For example, if a company has a well-established distribution setup but lacks manufacturing, it could form a joint venture, with the company with a strong manufacturing process to get a specific project.
2. Cost Saving: Both the companies in a joint venture could leverage their production at a lower per-unit cost, which would not have been the case if they were working separately.
3. Combined Expertise: when two companies join hands together, they gain better skills and more workforce to accomplish the task. This way both the companies gain benefit from each other.

The most important legal instrument in a Joint Venture is the Joint Venture agreement, which outlines the duties and obligations of the partners, the objectives of the joint venture, the contribution made by the partners, layout the day to day work operations, the right to profits, etc. Since it is an important legal document on which the whole joint venture is dependent it is extremely essential to draft the document correctly, to avoid any litigation in the future.

The most common use of a joint venture is to enter a foreign market. This option is usually utilized by the companies that want to expand their business and distribution system, therefore they enter into a joint venture with local companies that are already established in that market, and thus gaining benefits from an already existing and established system of distribution.

There are many examples of joint ventures such as Sony Ericsson, Microsoft Corporation (NASDAQ: MSFT) sold its 50% stake in Caradigm, a JV it had created in 2011 with General Electric Company (NYSE: GE), etc.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.