CHAPTER 14

JOINT VENTURE
Meaning of Joint Venture
 A joint venture (JV) is a business arrangement
in which two or more parties agree to pool
their resources for the purpose of
accomplishing a specific task. This task can be
a new project or any other business activity.
 In a joint venture (JV), each of the participants
is responsible for profits, losses, and costs
associated with it. However, the venture is its
own entity, separate from the participants'
other business interests.
Example:
Sony Ericsson is another famous example of a
JV between two large companies. In this case,
they partnered in the early 2000s with the
aim of being a world leader in mobile phones.
 After several years of operating as a JV, the

venture eventually became solely owned by

Sony.
Meaning of Joint Venture
 A joint venture is an association of two or
more entities (whether corporate,
government, individual or otherwise)
combining property and expertise to carry
out a single business enterprise and having a
joint proprietary interest, a joint right to
control and a sharing of profits and losses.
 A Joint venture is a contractual agreement
joining together two or more parties for the
purpose of executing particular business
undertaking. All parties agree to share in the
profits and losses of the enterprise.
Joint venutre exmple in india.
 Bharti-AXA General Insurance Co Ltd
 Bharti AXA General Insurance Co Ltd is a JV between
India’s leading business group Bharti Enterprises and
insurance major from France, AXA.
 This leading insurer in India began operations in August
2008. The company is licensed by Insurance Regulatory
and Development Authority of India (IRDAI).
 Bharti AXA offers a comprehensive range of insurance
products ranging from vehicle, health, travel, home and
education, among others. Bharti-AXA General Insurance
is among the pioneers of JV in India’s insurance sector.
Joint venutre exmple in india.
 India’s private banking giant, ICICI Bank has two
successful JVs to offer insurance products.
 ICICI Prudential Life Insurance Company Ltd: is a
joint venture between ICICI Bank and UK-based
Prudential Corporation Holdings Limited.
 ICICI Lombard: is a JV between ICICI Bank and
Fairfax Financial Holdings Ltd of Canada.
 Through these JVs, ICICI Bank offers a variety of
insurance and investment products to clients in
India and Indian citizens residing in various
parts of the world.
Joint venutre exmple in india.
 Max Life Insurance Company Limited is a JV
between Max Financial Services Ltd and
Japan’s Mitsui Sumitomo Insurance Co. Ltd.
 A large number of products of Max Life
Insurance are retailed online as well as
through reputed Indian financial organizations
such as Axis Bank.
 Max Life’s insurance and investment schemes
include term, health, retirement and Unit
Linked Investment plans, and investment
schemes for savings and higher education.
Joint Venture Example
 1. Avi-Oil India Pvt. Ltd.
 Date of establishment – 4th of November 1993
 Joint venture Holders- Balmer lawrie & Co Ltd,
NYCO SA, France
 Areas of operation- mineral based lubricating oil,
defense and civil aviation uses, greases and
hydraulic Fluids
 This company includes wide range of hydraulic
fluids, protective's, greases in hostile environment.
It is also connected with the safety of aircraft with
the supply of Aviation and military lubricants.
Joint Venture Exmple
2) GSPL India Gasnet Ltd.
 Joint venture Holders- GSPL, HPCL, BPCL
 Areas of operation- Natural gas pipeline

selling
 It is a joint venture company which is known

as pioneer in the field of energy

transportation. Currently it has its pipeline
network in Gujarat.
Joint Venture Exmple
3) Petronet LNG Limited
 Date of establishment – 2nd of Feb 1998
 Joint venture Holders- GAIL (India) Ltd, Bharat

Petroleum Corporation Ltd, Oil & Natural gas

Corporation Ltd., Gaz de France, ADB
 Areas of operation- re-gasification of LNG at

Dahej and Koch, developing facilities for import

 This is a company with many holders working for

the same objective of boosting the Indian energy

sector with hard work and strategic planning.
Basic Elements of Joint Venture
A) Contractual Agreement
 A joint venture is established through a
contract between the parties.
 The contract may consist of two or more
agreements. The agreement is entered into
between individuals, or organizations.
 The parties enter into specific agreement to
carry on an enterprise for profit. A contract,
express or implied, between the parties, is
essential to create the relation of joint
ventures.
B) Specific Limited Purpose and Duration
 Joint Venture are formed for a specific

business objective and can have limited life

span or be long term .
 Joint venture are frequently established for a

limited duration because of the fact that

C) Joint Property Interest: Each Joint Venture
Participants contributes property, cash or
other assets and organizational capital for the
purist of a common and specific business
purpose.
D) Share Profit losses: The joint venture
participants share in the specific and
identifiable financial and intangible profit and
losses
E) Common financial and intangible Goals:
The Joint venture participants share a
common expectation regarding the nature
and amount of the expected financial and
intangible goals and objective of the joint
venture
 Difference between joint venture and
merger
 A merger occurs when two firms, usually equal in size decide
to continue business as a single firm rather than being owned
and operate as separate entities.
 • In a joint venture, the two companies will separately exist
on their own, and a new separate entity may be formed for
the particular division or new business venture.
 • The reasons for which either a joint venture or merger
occurs is quite similar, and usually occurs because combined
operations can benefit both firms through economies of scale,
better technology and knowledge sharing, larger market
share, etc.
 Joint ventures can also be formed on a short term basis
for short projects.
 A joint venture requires less commitment than a

merger, which is a larger commitment that is

permanently put in place.
 Mergers are perfect when majority of the two

businesses overlap, and they can perform most of their

business operations as one entity.
 On the other hand, a joint venture is formed when two

firms do not have such large overlaps and similarities

and only have one specific area in which they can work
together successfully.
Difference Between Joint Venture
and Strategic Alliance
Structuring The Joint Venture
 The Structure chosen will be between
different types of partnership, corporation or
some of a limited liability company,
depending on the tax liability each joint
venture wants to be exposed do.
1) Corporations: Corporations are commonly
preferred choice for Joint venture. The legal
status of a corporation is clear and its ability
to own assets, incur liabilities and enter into
legally binding contract is obvious to third
parties.
2) General Partnership:
 All partners in a general partnership have

personal liability for debt and other

obligalation incurred by partnership.
 One advantages of a general partnership in

India and many other countries is that

normally no income or franchise tax is
imposed on it,
3) Limited Partnership:
 Under limited partnership there are two
distinct types of partners ;general and limited.
 The general partner carriers responsibilities

similar to the one he carries in general

partnership including the ability to legally bind
to the whole partnership and being personally
liable for debts and obligations of the
partnership.
 Limited partner mainly contributes capital and

receive a specified share of its profits.The

limited partners excluded from the active
management of the partnership.
4) Limited Liability Company
 A limited liability company (LLC) is a corporate

structure whereby the members of the company

cannot be held personally liable for the company's
debts or liabilities.
 Limited liability companies are essentially hybrid

entities that combine the characteristics of a

corporation and a partnership or sole proprietorship
.
 While the limited liability feature is similar to that of
a corporation, the availability of flow-through
taxation to the members of an LLC is a feature of
partnerships.
Factors to be considered to form a Joint Venture

a) screening of prospective partners.

(b) joint development of a detailed business plan
and short-listing a set of prospective partners.
(c) due diligence: Checking the credentials of other
party (Trust and verify-trust the information
you receive the prospective partner)
(d) development of an exit strategy and terms of
dissolution of the joint venture.
(e) most appropriate structure. ( Corporations,
Partnership firm of limited liability company)
(f) availability of appreciated or depreciated
property being contributed to the joint
venture.
(g) special allocations of income, gain, loss or
deduction to be made among the partners
(h) compensation to the members that provide
services
Documents for establishing a Joint Venture

(1) Memorandum of Understanding:

 Both parties objectives and functions
 Commercial term in details
(2) Joint venture or shareholders’ agreement:
 Shares
 Management Structure
 Withdrawal roghts
 Any warranties
(3) Constitutional documents:
 Articles of association.
 Memorandum of association.
(4) Registered User Agreement.
(5) Technology license and know-how
agreement
(6) Directors’ service agreements.
(7) Corporate governance and policy manual.
(8) Other agreements commonly negotiated
include those relating to supply,
distribution, secondments and
confidentiality.
Advantages of Joint Venture.

1. New insights and expertise

 Starting a joint venture provides the

opportunity to gain new insights and

expertise.
2 – Better resources
 Forming a joint venture will give you access

to better resources, such as specialized staff

and technology. All the equipment and capital
that you needed for your project can now be
used.
3. – Both parties share the risks and costs
 In case the joint-group project fails, you are

not alone when bearing the costs of its

failure. Because you two had volunteered to
share the expenses, you both will also
support the losses.
4.Joint ventures can be flexible. For example, a
joint venture can have a limited life span and
only cover part of what you do, thus limiting
both your commitment and the business'
exposure.
5.New product Development
6.Tax advantages are significant factors in joint
venture.
7.Sharing of risk and ability to combine the
local in depth knowledge with a foreign
partner with know how in technology or
process.
 A joint venture can be also very flexible.
 Proper utilization of resources like
capital,equipment,the skill of individual
employees, patents ,finance and talented
managers.
 Finance support or sharing economic risks.
 Improve access to financial resources for both

partners..financial resources increase because

when two parties undertake economic activity
together then they share expenses this leads
to more access to each others financial
resources.
Disadvantages of the joint venture
 Some time partners have different opinion and the objective
for the joint venture.
 The objectives of the venture are not 100 % clear and the
communicated to everyone involved.
 Culture difference and management styles result in poor
integration and cooperation's.
 A clash of cultures and management styles may result in
poor co-operation and integration. People with different
beliefs, tastes, and preferences can get in the way big time if
left unchecked.
 The success of a joint venture highly depends on thorough
research and analysis of the objectives.
 High level of commitment of staff and management.
 Time consuming .
 Working in a different legal and commercial system.