What is a joint venture?

A joint venture is any type of business arrangement in which two entities decide to enter into a relationship in pursuit of some sort of common goal.

A joint venture is any type of business arrangement in which two entities decide to enter into a relationship in pursuit of some sort of common goal. The process may involve sharing certain resources or creating some sort of joint project that will ultimately benefit both parties. A joint venture can be ongoing or only exist for a short period of time, depending on the reasons for the partnership.

Typically, a joint venture is developed when two or more entities determine that working together will produce significant rewards for all involved. Often the idea is to share certain resources while pursuing the goal, jointly absorb any costs involved in the effort, and finally share in the rewards that follow. When successful, this approach can allow partners to achieve goals that would never have been possible on their own, and possibly improve reputation as well as generate additional revenue.

The idea of ​​a joint venture can be applied to all types of commercial agreements. For example, a decorator, a landscaper, and a contractor might decide to buy a house together, with the idea of ​​restoring it and selling it at a profit. The contractor brings to the table the ability to improve the integrity of the structure by updating plumbing and wiring to current codes. At the same time, the decorator can make room changes in the house that help make it more attractive to today’s market. The landscaper brings the home’s exterior back to life, creating an environment that helps increase the property’s appeal.

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With this type of joint venture, each of the three partners devotes time, talent and financial resources to making improvements to the property. Records of all expenses are kept so they can know how much investment they have in the project. After the alterations are completed and the house is sold, each of the three is reimbursed for the expenses incurred and the remaining profits are divided between them, based on the terms of the legal agreement governing the joint venture. At this juncture, the three partners can choose to consider the objective of the enterprise to be accomplished, break up the relationship and move on to other projects. If the venture is profitable enough, they may choose to keep the partnership, find a new property to revitalize, and try to repeat the success.

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