Types of Joint Venture

There are two types of Joint Venture:

1. Contractual Joint Venture (CJV):  

A contractual joint venture does not result in the formation of a new jointly-owned business. There is only an agreement to cooperate and work together. The parties do not share ownership of the company, but they do have some influence over it. They exercise some elements of control in the joint venture. A franchisee relationship is a common example of a contractual joint venture. 

The following are key elements in such a relationship: 
a. Two or more parties share a common objective to run a  business.
b. Each party contributes something to the venture or brings some input.
c. Both parties have some control over the business venture.
d. The relationship is not a transaction-to-transaction relationship but is of longer duration.

2. Equity-based Joint Venture (EJV): 

An equity joint venture agreement is one in which a separate business entity, jointly owned by two or more parties, is formed with the parties’ agreement. The essential operating factor in such a scenario is joint ownership by two or more parties. The kind of business entity might vary in the form of corporation, partnership firm, trusts, limited liability partnership businesses, venture capital funds, etc.

The following are key elements in such a relationship: 
a. There is an agreement to form a new entity or for one of the parties to join into ownership of an existing entity.
b. Shared ownership by the parties is involved.
c.  Management is shared jointly.
d. Capital investment and other financing arrangements responsibilities are shared by both parties.
e. Profits and losses are shared according to the agreement.