A joint venture is a particular kind of business partnership that brings with it several benefits and risks. They can provide investment opportunities and resources, but may also bring up conflict between partners and tension during the course of the venture. Carefully consider how much a joint venture will benefit your company and think ahead to plan out how to deal with any issues that arise. With the help of a mergers & acquisitions attorney, you may be able to avoid many of these problems thanks to advance planning and the guidance of a professional.
Benefits of a Joint Venture
Beginning a joint venture provides companies with several clear benefits that otherwise may be difficult to access. During the venture, each partner receives new investment opportunities. This can improve their market prospects and allow them to better understand their industry, which in turn provides the opportunity for growth and innovation.
Similarly, each partner gets access to new resources. These can include lifelong connections, such as introductions to new vendors and other outside support, or temporary access, such as the assistance of a more advanced customer service team for the duration of the venture. In both cases, joint ventures allow companies to share resources that can have a major impact on all partners involved, teaching them new ways to operate and providing valuable connection.
No business deal is without its liabilities. In a joint venture, these liabilities are shared evenly among partners. More input on each decision made means that the risk of encountering a liability is minimized, but if the venture faces a problem, each partner is equally responsible for developing a solution and handling any consequences. In this way, smaller companies can be empowered to take on ventures with larger risks, as they stand to lose less than if they were to embark on the same opportunity alone.
Finally, joint ventures are flexible. Their terms are limited, meaning that they will not tie up time, money, and other resources for an extended period. If the venture team proves difficult to work with, or the project begins to take a larger toll than expected, partners can take comfort in knowing that it will soon come to an end. They can then refocus their efforts on their own business and use the venture as a learning experience for future partnerships.
Possible Risks
In a joint venture, you may be asked to work with virtual strangers for the benefit of your companies. While you may trust and respect your partners, the lack of familiarity may be cause for concern. Drastically different management styles and techniques can lead to conflict. Each partner may feel that their management style is the most effective and worry that others’ techniques will damage the venture. This can erode trust, damaging relationships and creating disharmony.
A lack of clarity in responsibilities can also create problems. While each partner should be clearly aware of what is expected of them, failing to outline those tasks in advance may lead to missed deadlines, lost money, and a feeling that people are not truly committed to the venture. It is therefore wise to establish these responsibilities in writing prior to the formation of the venture, allowing partners to refer back to their original commitments to hold themselves and others accountable.
To help the venture run as smoothly as possible, each partner should strive to invest the same amount of capital and resources into its success. However, this may not always be possible if the businesses involved do not have the same resources. This imbalance can lead to conflicts of interest. Some partners may feel that their contribution entitles them to more input in the venture’s decisions, while others may make decisions solely on how they can protect their investment.
Each of these situations can be resolved through effective conflict resolution. The stress of operating a joint venture, however, often leads to the opposite. When no realistic conflict-resolution methods exist, problems can be left to spread and grow until they become unmanageable. This threatens the success of the venture and could damage partners’ reputations within their industries, making the establishment of conflict-resolution practices early into the partnership a critical step.
Hiring a Mergers & Acquisitions Attorney
A mergers & acquisitions attorney can provide professional guidance and assistance at any stage of a joint venture. They can moderate meetings to discuss goals and rules, create and review contracts and other official documents, and advise on the best ways to structure the venture for success. If any problems arise during the course of a venture, a mergers & acquisitions attorney can mediate a resolution and amend contracts and other documents if necessary.
Speak with a mergers & acquisitions attorney at OFP Law for more information about joint ventures. The firm’s attorneys are highly skilled in several areas of business law and management and can provide customized support based on your situation. The attorneys at OFP Law have represented partners, buyers, and sellers in a wide range of industries, including technology, healthcare, and government contracting.