Joint Venture or Strategic Alliance?

Written by Stuart Blake and Michael Oswald

Many businesses join forces to benefit from one another’s strengths and expand sales or operations. There are two ways businesses can do this: through a joint venture or a strategic alliance. This article will discuss the differences between the two and their uses.

Joint Ventures

Joint Ventures occur when two companies invest funds into creating a third, jointly owned company. That company is then referred to as a joint venture. It functions as a separate entity, but has access to resources such as assets, knowledge, and funds from the parent companies. It can then combine the best features of both parent companies without altering them in any way. The profits from the joint venture are owned by the parent companies.

Joint ventures are used by companies who want to shield themselves from the risk of the new venture failing. If it is operated lawfully yet it fails, the loss is limited to each parent’s investment., Creditors of the joint venture don’t have the lawful right to recover from  either of the parent companies.

There are downsides to joint ventures. Establishing and operating a joint venture typically requires significantly more time and money than  does a strategic alliance.

Strategic Alliances

If a company wants to quickly gain a new expertise or access to new technology or markets, they can form a strategic alliance with another company that would also benefit from the partnership. Strategic alliances usually have a limited function, such as trading access to their technology, trademarks, etc. The agreement for a strategic alliance could have a sunset date or be open-ended with regular performance reviews.

Strategic Alliances are used to allow each company to pursue a new market, product, or strategy that would be difficult or inefficient to manage on their own.

The team at InnovaCounsel can help companies decide which of these would be the most beneficial in attaining their business goals. We are very knowledgeable about both arrangements and can assist companies in navigating through the details and contracts or agreements related to starting a joint venture or strategic alliance. 

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