Joint Venture

Do you want to help your business grow faster, increase productivity and generate more profits? Without sounding like a sales representative from a pyramid scheme, this legal insight will focus on one of many ways where “two heads are better than one”.

What is a joint venture?

A joint venture is an agreement between two companies to pool their resources together for the purpose of accomplishing a specific task/project for a specific period of time.

There are two types of joint ventures, the first is when two companies come together to form a separate company through which the venture will operate (incorporated joint venture), the second is where two companies agree to work as a team without having to register a separate company for the purpose of completing the specific project (unincorporated joint venture).

We focus on the second joint venture which is purely contractual in nature. This joint venture it is quite popular when companies respond to tender bids. It is important to remember that this type of a joint venture is not a separate legal entity and is governed entirely by the legal agreements that bring it into existence. The Companies Act 71 of 2008 will, however, continue to regulate the separate juristic persons, but  not the joint venture itself.

How can a Joint Venture benefit your company?

Amongst many other benefits that a joint venture may provide, it may provide your company with new capacity and expertise, access to greater resources, the risks that come with the particular project are shared jointly and severally amongst the ventured companies and it also provides room for your company expands its capacity to generate income through multi-disciplinary joint venture formations. This may become particularly relevant in instances of multidisciplinary projects that require a combination of skills, knowledge and expertise.

Outside the context of the local South African market, forming joint ventures with legal entities in other countries can also allow your company to do business in foreign jurisdictions with greater ease. Geographical, cultural and ethnic boundaries may be much easier to navigate with a foreign-based partner. As such, a transnational joint venture can certainly offer your company a unique competitive edge and serve as a means of expansion.