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Forming a Joint Venture

There are many reasons why businesses decide to enter into a joint venture. For example, businesses enter a joint venture to facilitate a new project, gain access to new markets, or increase market power. A joint venture is formed when at least two businesses combine their skills, property, or knowledge to engage in a specific business activity. The activity can be a new one or an already-existing one. However, unlike a merger or partnership, each company or party in a joint venture maintains its independent business identity. Usually, when a joint venture succeeds, the involved businesses share in the profit. If it fails, involved businesses realize their portion of the losses. If you are in California and are looking to form a joint venture, read on.

Pros and Cons of a Joint Venture

Before looking at how to form a joint venture in California, it is crucial that we first look at the pros and cons of joint ventures. The following are some of the benefits of joint ventures;

  • Shared resources and responsibilities
  • Flexibility for the involved businesses
  • Shared business risk
  • It can help a business increase productivity
  • It can help a business generate greater profits
  • Increased capacity
  • Access to new markets
  • Access to new distribution networks

The following are some disadvantages of joint ventures;

  • Requires relinquishing a degree of control
  • The level of investment and expertise is not equally matched
  • The resources and work are not distributed equally
  • The different management styles pose a barrier to co-operation

How to Form a Joint Venture in California

Forming a joint venture is much like forming a general partnership. There is no need to file any filings with the California Secretary of State to start a joint venture. In other words, a joint venture does not require formation documents. To form a joint venture in California, all you and the other party or parties need to do is to enter into an agreement, which can be written or oral. However, it is advisable that you enter into a written agreement. Entering an oral agreement can cause many problems. For example, if there is no written agreement, disputes about the distribution of profits can arise. A written agreement will clearly explain how profits should be calculated and distributed.

Because a joint venture does not require formation documents, it can be an attractive means to operate. However, before deciding to form a joint venture, there are certain things you should know, including the disadvantages of joint ventures (which have already been outlined in the previous section). You also need to know that, unlike an LLC or corporation, a joint venture and all of its members are responsible for the venture’s debts. A joint venture and its members are also responsible for liability arising from the wrongful conduct of any member.

If you are considering forming a joint venture, it is best that you speak to a qualified business attorney before proceeding.

Contact a Business Attorney Serving Santa Clara and Silicon Valley

If you are considering forming a joint venture in California and need professional legal guidance, contact the experienced business attorneys at SAC Attorneys LLP.

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