If you’ve ever seen one of the many different business investment shows on television, you’ve likely heard the terminology “core competency” used. It has to do with a company defining what they do well so that they can use it to their competitive advantage.
When two companies with two distinct core competencies join forces, this is referred to as a joint venture (JV). Companies that come together to do business with one another for the expressed purpose of seeing a project through to completion are examples of this type of corporate arrangement.
Companies that form a JV often create separate business entities for that purpose. Partnerships, limited liability companies or corporations all allow them to pool funding and establish boundaries for sharing their knowledge and resources. If the two companies create their own entity, then they’ll likely share profits and losses, as well as leadership.
When drafting a joint venture agreement, it’s important that the companies clearly define what percentage of the partnership each will own. If they join together as a corporation, it’s important to share a board of directors and equal shares of stock.
Taxes will be the responsibility of both companies. They will be assessed at whatever rate is appropriate for the type of business entity they form.
How each will ensure that they recover their share of profits and pay their losses must also be detailed in the agreement. Once it’s signed, much like any other contract, the parties are bound to abide by it.
Joining forces with another company as part of a joint venture is only part of the process of getting operations underway. There are pros and cons to to setting up your venture as a corporation, partnership or limited liability company. A St. George business organization attorney can detail the benefits and perils of each option before you draft your operating agreement.