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

What is a joint venture (JV)?

A joint venture (JV) is a legal agreement where two or more businesses collaborate on a specific initiative while remaining otherwise independent. The JV agreement defines how the partners share ownership (if applicable), responsibilities, liability, and profits or losses.

What’s the difference between a joint venture and a partnership?

A joint venture is typically created for a defined objective or project, with terms spelled out in a joint venture agreement that covers contributions, decision-making, and how the arrangement ends. A partnership is usually a broader, ongoing business relationship. In practice, a JV can look “partnership-like,” but it’s usually narrower in scope and duration, with more explicit governance and exit terms.

What are the main types of joint ventures (equity-based vs. contractual)?

The most common structures are equity-based and contractual joint ventures. In an equity-based JV, partners form a new legal entity and contribute capital in exchange for equity ownership. In a contractual JV, the partners stay legally separate and collaborate through a contract—often used for short-term or project-based work to avoid forming a new company.

What should a joint venture agreement include?

A strong JV agreement clearly documents the rules of the relationship from day one. At a minimum, it should outline the ownership structure and equity share (if any), capital investment and ongoing contributions, decision-making processes, profit and loss allocation, dispute resolution procedures, and exit terms for ending the JV and dividing assets or settling obligations.

What are the advantages and disadvantages of a joint venture?

Common advantages include sharing resources and costs, entering new markets faster with a partner who knows local requirements, scaling more quickly by combining capabilities, and boosting innovation through shared expertise. Common disadvantages include conflicts between partners, shared liability and financial risk, reduced autonomy in decision-making, and added legal and regulatory complexity—especially when the JV operates across borders.