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.

Joint ventures should be a win-win situation for all parties concerned. Everyone should benefit. However, a joint venture can go terribly wrong if the parties involved don't share the same vision for the company. It is therefore imperative that you cover all your bases before signing on the dotted line.

Check the Credentials

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.

Business Plan Development

All parties involved should take part in developing a business plan for the joint venture. The plan should be developed using a short list of prospective partners. It should also clearly define the goals of the venture, and how success will be defined. The plan should also contain a mutually agreeable exit strategy and terms of the joint venture's dissolution. Provisos for an unexpected dissolution before the term is up should also be included.

Appropriate Structure

There are many different ways to structure a joint venture. Limited Liability Corporations can be formed, as well as other types of new businesses. Many fast growing companies structure their joint ventures as strategic corporate partnerships. Do your research to decide the best way to register your venture.

Availability of Property and Resources

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 your partners and you find it difficult to reach agreement on the above issues, it may be time to say goodbye. You should look for other partners, with whom you can work. Because when you can come to an understanding, joint ventures can yield high profits.