Business partnerships may be formed under a variety of circumstances. They generally involve at least two different businesses, or people, coming together for a common business purpose. Some business partnerships are long-term arrangements, however, there is also what’s known as a temporary business partnership. This is often also referred to as a temporary joint venture, or simply a joint venture.
The temporary nature of this type of partnership is usually related to a temporary business need. For example, if two companies are combining their forces to market specific products, then they may agree to a formal joint venture. The agreement to work together can be made informally, via a conversation and a handshake, but it is more often done formally and in writing.
Putting the agreement in writing memorializes the terms, so there is less likely to be a dispute over them. It can also serve as a record if the parties do have a dispute. Once the businesses join to work on the venture, they can share resources, making the venture more efficient, and, hopefully, more profitable to each. The partnership ends when the reason for working together is completed (or at a specific, agreed-upon date).
What are the Advantages of Temporary Business Partnerships?
There are several advantages for separate businesses working as partners. These include such things as:
- The parties can share a customer base.
- The parties can make referrals of customers to one another.
- Shared resources, including personnel, facilities, technology, and materials.
- The parties can share the manufacturing load, reducing costs to each.
- The parties can share services.
- The parties share risk, which may be more attractive than one company undertaking the cost of risk on their own. Sometimes a company may be unable to undertake the risk alone, but able to accomplish their goal through a joint venture.
- The parties don’t have to form a separate, new company/legal entity. This allows for minimal disruption to a business’s regular operations.
- The parties are able to share their distribution channels
- The overall effort required to accomplish the venture is shared.
As an example: Kellogg, the cereal company, joined forces with Wilmar International Limited. Wilmar had already established a business presence in China, where Kellogg wanted to expand. Kellogg was able to use Wilmar’s distribution channels and other resources. Kellogg increased profits by expanding its market into China, and Wilmar was also able to increase its business opportunities and, thereby, its profits.
Are There Any Disadvantages to a Temporary Business Partnership?
There may always be drawbacks to any business arrangement. The primary issue in this type of situation is the loss of control that may result from two businesses combining their efforts to some degree. Some of a business’s finances will necessarily be exposed to their business partner, as they share resources in order to accomplish their goals.
Additionally, when two entirely separate businesses come together, it can also lead to contractual issues. There may be questions about how much resources each business should be putting into the partnership and whether either business is allowed to continue on with separate business pursuits. It is important that most of these issues are addressed before the partnership begins, and it is important that the involved business partners put in a good faith effort to be true to the agreement.
What is a Joint Enterprise and How is it Different for a Joint Venture?
The terms are sometimes used interchangeably. As discussed above, the joint venture is when two businesses combine their efforts and resources in order to reach specific, agree-upon goals. The venture benefits both parties, by allowing them to pool resources and reduce risk.
The joint venture is often undertaken when the parties have a specific goal or product in mind. The parties did not need to combine permanently, only long enough to create a product that benefited them both. Of course, although their partnership ended, the parties could work on a different product together at some point in the future.
A joint enterprise, on the other hand, tends to be made informally. For example, two companies might agree to conduct and share research that each needs for a business purpose. The termination of this agreement is less clear than that of a joint venture. There is no “product,” per se, to be completed, so the enterprise may be terminated whenever the parties decide it is at an end.
Do I Need a Lawyer to Help Me With My Temporary Business Partnership?
Laws regarding business partnerships vary by state. If you are interested in planning a joint venture, it would be to your benefit to contact a local business lawyer who understands the rules in your state. The attorney can help you establish the agreement, including putting the terms in a written contract. Your lawyer can also help if any disputes arise in the course of the partnership.