What is a joint venture?

A joint venture (JV) is a business arrangement where two or more parties agree to pool their resources for a specific project, venture, or business activity. Each party retains its separate legal identity while sharing ownership, returns, risks, and governance of the jointly established entity or project. JVs are commonly used for large-scale business opportunities, international expansion, or combining complementary strengths to achieve greater success.

Key takeaways

Collaborative mechanism

JVs enable businesses or individuals to pursue shared objectives without merging entire operations or forming a permanent partnership.

Shared ownership

Partners contribute assets, expertise, capital, or technology and receive proportional shares of profits, losses, and decision-making authority.

Risk and reward sharing

Risks and rewards are distributed according to the participation and agreement of each partner, making it a balanced approach compared to going solo.

Global and local reach

JVs can facilitate entry into new markets, such as local companies partnering with international firms to navigate regulations or consumer bases.

Why does a joint venture matter?

Joint ventures have revolutionised business strategy, especially for companies looking to expand globally or tackle complex projects. By allowing organisations to combine strengths and share risks, JVs lower the barriers to innovation and market entry. They offer rapid access to new markets, technologies, or resources, while facilitating the sharing of expertise. However, the success of a JV heavily depends on clear agreements, aligned incentives, and proper governance.

The joint venture process

Proposal & planning

The parties identify mutual objectives and develop a detailed plan that outlines the purpose, scope, and contribution requirements.

Negotiation & agreement

Terms are negotiated, including structure, management, capital contributions, profit-sharing, and exit strategies, typically formalised in a joint venture agreement.

Legal formation

Depending on jurisdiction, a separate legal entity (corporation, partnership, or LLC) may be formed, or an unincorporated contractual JV may be established.

Operational Launch

The raised capital is allocated as outlined in the whitepaper, with funds typically held in multi-signature wallets for enhanced security.

Exchange listing

Following the ICO, tokens may be listed on cryptocurrency exchanges, enabling investors to trade or utilise them.

Invoice receipt

Vendors send invoices after delivering goods or services.

Impact on financial statements

Unlike equity or debt issuance, ICOs are not classified as traditional liabilities or capital on a company’s balance sheet. Instead, ICO proceeds are often booked as deferred revenue (a liability) until the promised services or platform functionalities are delivered. Regulatory and accounting treatments vary by jurisdiction.

Real-world examples

Case study: Sony Ericsson (2001)

Sony (Japan) and Ericsson (Sweden) formed a 50:50 joint venture to combine Sony’s consumer electronics strengths with Ericsson’s expertise in mobile communications. This allowed both companies to compete more effectively in the global mobile handset market. Although the JV was eventually dissolved in 2012, it successfully introduced innovative products to the market during its existence.