Joint Venture (JV)
What it is:
A joint venture (JV) is a project or enterprise in which multiple companies or individuals invest. Participants usually share equally in the project's direction and profits.
How it works/Example:
If two or more parties think they can mutually benefit from an entrepreneurial opportunity, they may enter into a joint venture (JV). In a JV, all interested parties take a stake in the project by contributing capital (sometimes known as putting "skin in the game").
For example, suppose Company ABC and Company XYZ agree that Project P will be profitable. Project P requires an initial investment of $10,000. The companies agree to create a JV, and each pledgs $5,000 in funding (50% each). If Project P generates $1,000 in earnings in year 1, each company gets $500.
Why it matters:
Joint venture participants collaborate in the project's planning, execution and management. Participants also share in the profits the project generates according to how much capital they invested. It's important to note that participants in a JV are also responsible for any project losses. Earnings from a JV are generally taxed similar to a partnership.