What is JV (Joint Venture)?
Joint Venture (JV) Definition
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.
In a joint venture, each participant is responsible for the associated profits and costs, however the venture itself is its own entity, separate from the other existing businesses.
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.