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What is a joint venture?

Qu’est-ce qu’une joint-venture ?

The joint venture is the preferred solution for companies wishing to develop a market in a new country. In addition, it can also be an asset for manufacturers who wish to combine their various leasing contracts into a single structure. The joint venture has been growing rapidly in recent years as it is considered more profitable than other forms of cooperation.

The joint venture is a contract that links several companies with a common objective of development and then pooling of skills and risks. This article will tell you more about the definition of a joint venture, its benefits, its risks and how to set it up in your company.

1. What is a joint venture?

A joint venture is an English term that means joint venture in French. It is the setting up of a contract that associates several companies with the aim of developing a common strategy.

The aim is mainly to conquer a market, a sector or a country by taking advantage of the complementary nature of the different companies.

For example, for Chetwode, we have created a subsidiary called Chetwode 360. This company is a joint venture between Chetwode and Soka Partners. We chose Soka Partners because of their expertise in sales financing.

Here are the different elements that bind the joint ventures:

  • A contract: it sets the rules of the collaboration and has a time limit
  • A structure: the companies may have a common business or branch office, for example
  • Management of the structure: the companies manage the joint venture together and share the risks

2. What are the objectives of a joint venture?

The objective of creating a joint venture is to implement a development strategy for the partner companies. The joint venture allows for the creation of opportunities by pooling the complementary nature of the companies. For example, it may be to optimise expertise in one’s company, its production or its capacity for innovation. It can be used to develop a new industrial product or to create a new structure to open up a new market abroad. The joint venture relies on the complementary skills of the companies for the strategic development of an activity.

3. What are its advantages and limitations?

First, the advantages of a joint venture:

  • The joint venture allows you to establish yourself in a new country with the creation of a local company
  • The establishment of a joint venture develops the pooling of skills for the creation of new markets or new strategies
  • This cooperation makes it possible to share the risks between the different structures

Then the limits:

  • The joint venture can slow down decisions because the opinions of each of its components must be taken into account
  • It is important to distribute the powers between the different structures to avoid conflicts of interest
  • Setting up the financing of the joint venture can take a long time, for example when the different components do not wish to give their guarantee for the financial commitments of the joint venture

4. How to set up a joint venture?

Firstly, joint venture structures can be of two types:

  • Either the companies are linked with a contract
  • Or the joint ventures can develop their association to create a joint subsidiary

Then, the joint venture contract must include various mentions: the duration, the legal form, the financial terms (investments, costs, etc.), the functioning of the joint venture (voting rights, contributions of the joint ventures, etc.), the turnover objectives, the terms in case of unforeseen events, etc.

And the joint venture is subject to taxation. If the legal form is that of a legal person, it must pay the tax on profits in the country where it is located. If it does not have this legal form then the results will be integrated into those of the partner companies in the joint venture.

If you wish to group your leases in a company created especially for this purpose, for example with the objective of sales financing, this company will be your “financing captive” in charge of financing the development of your sales through vendor-lease. This joint venture will enable you to join forces with financial partners to raise finance and pool the risks associated with the underlying lease transactions.

 

Finally, a joint venture can be a solution for your industrial business, especially if you want to consolidate your leases into one company or if you want to expand internationally. It will allow you to pool your skills with partners and participate in the development of your business.

 

The industrial finance press review

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