A savvy way to generate huge profits, a joint venture is a separate entity. It comes in to being when several or two different businesses join hands for mutual profit. All the companies involved share control over the venture, and all matters to with it. But their unrelated business activities remain unaffected and carry on like they did before it existed.

An alliance created with an eye on strategy, your joint venture partners should complement your business activities. They should capable of providing a complementary service like distribution, finance, technology or personnel. For example, you could form a venture with a company with distribution capabilities if you need one and offer your finance capabilities in return.

So that everyone in the joint venture gains, and gets what they want from it. But conflicting views among the parties to the venture can spoil the party. So here are some things you should look at before you become party to one:

Know Who Your Business Associates Are

Before entering into any business relationship, it is important to know whom it is you are dealing with. This is especially in joint ventures, as your reputation becomes entwined with that of your partners in the venture. Verify information with third parties, and make sure that there is a strong basis for trust. Also, ensure that the company is capable of holding up its end of the deal.

Drawing up a business plan

Building the business plan should involve everyone in the venture. Start out with a list of intended parties to the venture, and establish its aims and goals. Establish definitions for success when the goals are met. And come up, by mutual consent, with the definitions and terms for an exit clause. and terms of the joint. And mutually agree on provisions for pre-mature dissolution. venture's dissolution.

Registering the company

You can register your joint venture in a variety of different ways. A Limited Liability Corporation is one option as are other types of new businesses. Many fast growing companies choose to register their joint ventures as strategic corporate partnerships. Investigate all your options before making a decision.

Establish Resource and Property Inputs

Ensure that what each partner brings in terms of land and buildings, revalued or depreciated and other resources are clearly spelt out. Remember to establish whether any conditions attached, like limitations on use of property. Clearing all issues at this stage will help avoid monetary problems down the road.

Special allocations

In the event that special allocations need to be made, this needs to be decided beforehand. These items include special gain or loss, and also includes income and deductions. If there is a loss, some of that will need to be allocated to each of the partners. Additionally, compensation to the partners that provide specific services should also be determined beforehand.

If you can't reach an understanding with your partner on the above issues, then perhaps you had better look elsewhere. However, if you see eye to eye with your partner on all issues, your joint venture is likely to flourish and pay handsome dividends.