These are enterprises which are small and still growing hence they team up with other enterprises when providing a service or when bidding for a tender. This kind of partnership is called a joint venture “the JV”. A joint venture is a strategic cooperation where two or more people or companies agree to contribute goods or services to a common commercial enterprise for the purpose of a specific tender. A JV is different from a company in that two or more people partner together for a specific purpose. A JV is different from a partnership in that members have come together for a specific purpose and in the case of a partnership, two or more people partner together to run a business for an There are a lot of small macro and medium enterprises “SMMEs” in South Africa. unlimited time.
Expenses for the specific project are shared by the members to the JV. Each member is liable for their own income tax and each member retains ownership of their personal fixed assets. It is important to open a bank account for the JV so as to ensure that an individual’s funds are not mixed up with those of the JV.
The JV can be created by conduct, orally, or through a written agreement. It is advisable to have the JV agreement written down as will set out the rules and responsibilities of each of the parties to the agreement. The importance of this agreement is that all parties will know the terms and their responsibilities to the agreement.
There are two types of JV available in South Africa and these are the incorporated JV and the unincorporated JV. An incorporated JV is created through the process of incorporation of a company as is regulated by the Companies Act No. 71 of 2008. Once the company is incorporated the persons involved in the JV become shareholders of the new entity. The entity then conducts the business of the joint venture, concludes contracts and is liable if things go wrong.
An unincorporated JV is a type of business arrangement in which multiple entities come together using a contract as the basis for governing the collective relationship, but without creating some sort of legal entity arrangement in order to pursue the joint venture. An unincorporated JV is regulated by contract law as the parties are governed by the terms of the agreement they sign.
The unincorporated JV is the most commonly used agreement. This agreement regulates and sets out obligations and duties of the parties. In this agreement, the businesses remain separate legal entities but act together to share strengths, minimise risks, and increase competitive advantages in the marketplace.
Advantages of Joint Ventures
They provide companies with the opportunity to gain new capacity and expertise.
They allow companies to enter related businesses or new geographic markets or gain new technological knowledge.
They access to greater resources, including specialised staff and technology.
Risks are shared with the other partner of the JV.
Disadvantages of Joint Ventures
It takes time and effort to build the right relationship and partnering with another business can be challenging.
The objectives of the venture are not clearly communicated to everyone involved.
There is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners.
Different cultures and management styles result in poor integration and co-operation.