Joint venture (JV): What it is and why companies create it

Joint ventures, or JVs, offer a practical way for businesses to grow—especially when entering new markets or combining resources with another entity. In this type of arrangement, two or more companies join forces under a formal contract to share capital contributions, manage risk, and pursue shared goals. Depending on the setup, a joint venture can take many forms—from formal legal entities to simpler, contract-based collaborations.

In this guide, we’ll walk through the different types of joint ventures, what makes them work, and how to structure a joint venture agreement that aligns with your vision for the future.

What is a joint venture?

A joint venture is a legal agreement between two or more businesses to collaborate on a specific initiative while remaining otherwise independent. These arrangements allow companies to contribute different forms of value—whether that’s funding, infrastructure, or expertise—and define clear terms for ownership, liability, and profits. The joint venture agreement sets the structure, outlining how the partners divide responsibilities and share returns.

There are several ways to set up a joint venture, depending on how closely the partners plan to work together and what each party brings to the table. The most common types include the following:

Equity-based joint ventures

In an equity-based JV, the parties involved form a new legal entity. Each partner becomes a shareholder and contributes capital in exchange for equity ownership. This type of joint venture is common to long-term partnerships—for example, when multiple electric vehicle manufacturers team up to build and manage a shared charging network across regions. One company might contribute the charging technology and infrastructure, while another focuses on expanding the network through distribution or service partnerships.

Contractual joint ventures

Rather than creating a new business entity, a contractual joint venture allows the parties to remain legally separate while working together. Companies often choose this type of partnership for short-term or project-based efforts to avoid the time and complexity of forming a new company. For example, two real estate developers might enter into a contractual joint venture agreement to design and build an apartment complex as part of a major city redevelopment—spelling out roles, sharing costs and profits, and limiting liability according to the terms of the contract.

Cooperative joint ventures

Cooperative joint ventures are often project-based and involve less formal integration than other JV models. With a more flexible structure regarding how much each partner owns, one party may take on more risk or control than the other. This type of JV is common in international partnerships, especially when local regulations limit or prohibit foreign ownership—a U.S. tech company working with a Chinese manufacturer to develop smartphone components through a partially owned subsidiary based in China, for example.

Benefits and drawbacks of joint ventures

For many businesses, joint ventures are a practical way to enter new markets, grow revenue, and share responsibility. But like any partnership, they come with trade-offs—both opportunities and challenges that depend on the details of the agreement and the relationship between the parties involved.

Benefits of joint ventures

• Shared resources and reduced costs: Joint ventures allow businesses to combine capital contributions, labor, equipment, and infrastructure. By pooling these assets, each partner reduces the cost and complexity of expansion, making it easier to take on large projects or enter new sectors.
• Access to new markets and customer bases: JV agreements often open doors to regions or sectors a company might not be able to reach on its own. Working with a partner that understands local regulations, distribution channels, and customer expectations makes market entry faster and more efficient.
• Easier to scale: With responsibilities and assets shared between the parties, joint ventures can help businesses move faster. Instead of building systems or teams from scratch, partners rely on each other’s capabilities to speed up development, reduce duplication, and respond more quickly to market demand.
• Combined expertise and innovation: Joint venture partnerships bring together different skill sets, perspectives, and experience. This strategic collaboration creates space for innovation and stronger problem-solving and often leads to outcomes that partners might not be able to achieve independently.

Drawbacks of joint ventures

• Conflicts between partners: Differences in strategic approach, leadership style, or company culture can create tension. Without clear alignment, the partnership may face disagreements that slow progress or lead to disputes, especially if the joint venture agreement doesn’t specify roles and expectations in enough detail.
• Shared liability and financial risk: In most JV arrangements, the parties share both profits and losses. Depending on the contract and the JV agreement’s structure, each partner may be held responsible for operational failures or financial losses, even if they didn’t directly cause the issue.
• Less autonomy in decision-making: Partners in a joint venture typically share responsibility for major decisions—such as hiring, capital contributions, and overall strategy. Without a clear framework for how decisions happen, disagreements can slow progress or lead to conflict.
• Legal and regulatory complexities: Forming a separate legal entity—especially across borders—often introduces compliance challenges. Differing tax laws, labor standards, and reporting requirements can lead to higher legal and administrative costs, particularly in international partnerships.

How to create a joint venture agreement

Creating a well-structured joint venture agreement is one of the most important steps in establishing a successful partnership. The legal document outlines the specifics of how the JV will operate, covering ownership, capital contributions, liability, and decision-making. The more clearly these terms are defined from the start, the easier it is to build trust, avoid conflict, and ensure the venture's success for every partner.

1. Define clear objectives

Start by clarifying the joint venture’s purpose. Are you expanding into a new market? Launching a new product line? Testing a new business model in a different region? The agreement should reflect each partner’s goals and how their respective capital contributions, expertise, or infrastructure will support the shared outcome. Use the joint venture agreement to clearly define each party’s responsibilities from the get-go.

2. Choose the right partner(s)

After deciding that it makes sense to go into a joint venture, it’s time to pick your partner or partners. Look into their financial health, legal standing, and business reputation. It’s also important to consider how their culture, values, and long-term vision align with yours—or complement each other in ways that still support a strong working relationship.

3. Draft a detailed JV agreement

Next, formalize your objectives and the rules that will govern the JV in an official, legally binding document. Be sure to outline the following:

• Ownership structure and equity share
• Capital investment and ongoing contributions
• Decision-making processes
• Profit and loss allocation 
• Dispute resolution procedures 
• Terms for exiting the agreement 

4. Ensure legal and financial compliance

Make sure your joint venture agreement complies with local laws, including tax regulations, antitrust rules, and labor standards in every country or region where you operate. Depending on the JV’s structure, that might involve registering a separate legal entity or forming a limited liability company.

5. Monitor and continuously evaluate performance

Your joint venture agreement should include a framework for measuring success. Ongoing reviews and regular check-ins help partners stay aligned and address challenges early. To do that, consider analyzing the following:

• Revenue: How much revenue has the joint venture generated? Has the combined revenue generation increased sales and profits for all JV partners? 
• Return on investment (ROI): Is the return proportional to each party’s capital contribution?
• Customer acquisition and market share: Has the JV helped expand your client base or reach new regions or sectors?
• Operational efficiency: Is the joint venture using shared resources effectively? Has it streamlined workflows, lowered costs, and improved outcomes like delivery times, service quality, or customer retention?

When to consider ending a joint venture

Some joint ventures last for years, while others focus on short-term objectives and wrap up once the project is complete. Contractual JVs, for example, are often formed to complete a specific initiative with a defined timeline. Other partnerships may end when business priorities shift or the arrangement no longer meets all the parties' needs.

Whatever the reason, a well-structured joint venture agreement helps bring clarity and fairness to the conclusion. Whether the venture is a success or falls short, it should outline how the partnership will end and what each party is responsible for, such as dividing assets or settling financial obligations.

As you evaluate a joint venture’s progress, consider some of the common reasons why JVs end:

• Shifting goals or priorities: Partners may change direction, making the original terms of the joint venture agreement no longer relevant.
• Financial or legal challenges: Losses, legal complications, or regulatory changes make it difficult for any of the partners to continue.
• Operational or market misalignment: Market shifts, internal friction, or resource inefficiencies prevent the partners from realizing what they set out to achieve.

How Oyster simplifies joint venture management

When joint ventures expand across borders, hiring and compliance can get complicated fast. Oyster helps simplify the people side of the process.

Oyster makes it easy to hire, pay, and manage team members in 180+ countries—without setting up new legal entities. Whether one partner is handling staffing or the joint venture needs to move quickly into a new market, Oyster gives you the tools to stay compliant and minimize risks like employee misclassification and unintended permanent establishment.

From global employment compliance to talent mobility, Oyster helps international teams get to work—faster and with confidence.

Book a demo to see how Oyster can support your global hiring strategy.

Disclaimer: This blog and all information in it is provided for general informational purposes only. It does not, and is not intended to, constitute legal or tax advice. You should consult with a qualified legal or tax professional for advice regarding any legal or tax matter and prior to acting (or refraining from acting) on the basis of any information provided on this website.