Guide to Joint Venture
A Joint Venture, or JV, is an arrangement or partnership between two or more entities in which they pool their resources to accomplish a specific task.
This may be a new project or another type of business activity.
The Purpose of a Joint Venture
The purpose of a joint venture is to take advantage of the resources of multiple companies at once in order to realize greater total gains through leveraged resources and minimize costs through economies of scale.
A joint venture also allows multiple companies to make use of the skills and specializations of each party.
How Are Joint Ventures Taxed?
For tax purposes, a joint venture will often involve the establishment of a new corporate entity.
The IRS does not recognize joint ventures on their own, so creating another entity for the venture, such as an LLC, allows the entity to be taxed as normal.
The distribution of taxes, expenses and profits are spelled out in a joint venture agreement, a written document detailing the terms of the venture.
Before You Form a Joint Venture
Some of the considerations when forming a joint venture are:
- How many parties are involved
- The operational scope of the venture (such as geography, technology, and the products offered)
- The contribution requirements of each party
- The joint venture’s organizational structure
- The initial contributions and division of ownership of each party
- The arrangements for once the deal has been completed
- How the venture will be managed and staffed
An example of a successful joint venture is when Google and NASA teamed up to develop Google Earth.
What Is JV (Joint Venture) FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.