Determining If a Joint Venture is Right for You Part 1
If you are a contractor interested in participating in large commercial projects but are lacking the expertise, manpower, or financial resources to take on the project on your own, there may be a solution to your conundrum. A joint venture may turn what once seemed impossible into a possibility.
At Cotney Construction Law, our Ft. Myers construction lawyers are committed to helping our clients grow their business. We encourage you to examine the advice in this first section and part two to help you determine if a joint venture is right for you.
What’s a Joint Venture
A joint venture is a temporary business arrangement between two or more entities for the sole purpose of completing a specific task. Joint ventures are common in the construction industry and provide excellent growth opportunities for smaller contractors. This type of agreement is strategic in nature and is organized as a separate entity. Businesses that participate in a joint venture share project ownership, risks, expenses, profits, and loss.
Benefits of Joint Ventures
Contractors should know that like any construction project, there are benefits as well as disadvantages to these types of agreements. The pros and cons are as follows:
- An opportunity to bid on larger projects
- Expand within a specific market to build more business relationships
- Maximize your area of expertise and profits
- Allows companies to combine resources and share costs
- The risk is managed more effectively because it is spread among all parties
- Provides some flexibility
- An imbalance of expertise
- Mismanagement of capital and resources
- A misunderstanding of roles
- High potential for conflict and culture clashes
- A lack of clear communication between partners
- Unclear or unrealistic project objectives or goals
- Unequal division of labor, losses, or profits
The aforementioned cons are not necessarily what will happen; rather, what could happen if the joint venture agreement is not properly researched, planned, and executed from the onset of collaboration.
Types of Joint Venture Agreements
There are several types of joint venture agreements that construction companies enter.
Integrated joint ventures: Complex projects split between two or more parties where resources and employees are combined, and profits and losses are shared according to their percentage of interest in the venture.
Nonintegrated joint ventures: Parties contract separately and are assigned duties. Each party is responsible for the resources, profit, and loss related to those duties and responsibilities.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.