joint venture

Joint Venture:
A Joint Venture is a cooperative enterprises entered into by two or more business entities for the purpose of a specific project or other business activity.

Often the joint venture creates a separate  business entity, to which the owners contribute assets, have equity, and agree on how this entity may be managed. The new entity may be a corporation, limited liability company, or partnership.

In other cases, the individual entities retain their individuality and they operate under a joint venture agreement. In any case, the parties in the JV share in the management, profits, and losses, according to a joint venture agreement (contract).

Joint ventures are often entered into for a single purpose - a production or research activity. But they may also be formed for a continuing p

Examples of Joint Ventures

Joint ventures can combine large and small companies on big and little projects. Here are some examples: 

MillerCoors is a joint venture between SABMiller and Molson Coors Brewing Company to see all their beer brands in the U.S. and Puerto Rico.

In 2011, Ford and Toyota agreed to work together to develop hybrid trucks. 

Mining and drilling are expensive propositions, and often two companies in these industries will combine as a joint venture to mine or drill in a particular area.

Forming a Joint Venture

All that's needed to form a joint venture is a written agreement between the parties.

The agreement should spell out the details of the purpose, how the two (or more) parties share in profits and losses, and how the parties share in making decisions about the joint venture. A joint venture, even if it's between two small businesses, should have at minimum this sort of written agreement.

  How a Joint Venture Pays Taxes

When a joint venture is formed, the most common structure is to set up a separate business entity. Then the parties each own a specific percentage of the entity. If the joint venture is a corporation, for example, and two businesses have equal shares in the business, they structure the company so each partner entity has an equal number of shares of company stock and equal management and board of directors members. 

The joint venture isn't recognized as a taxing entity by the IRS. So the business form that the joint venture company takes determines how taxes are paid. 

If the joint venture is a separate business entity, it pays income taxes and all other taxes like that business form. For example, if the new joint venture company is an LLC, it pays taxes as an LLC. 

Because the two parties have decided on how to split profits and losses, they will use that split to decide how each party receives profits, handles losses, and contributes to paying any taxes that are due.

If the joint venture is simply a contractual relationship with an agreement between two independent companies, the terms of the agreement will determine how the joint venture is taxed and how the tax is apportioned between the two entities.