Joint Venture Companies and Joint Stock Companies - Essay Example

What is a joint venture company? And what is the difference between this type of companies and joint stock companies? Course University Date of Submission What is a joint venture company? And what is the difference between this type of companies and joint stock companies? A joint venture company is one in which two parties form a partnership for the short term in order to benefit in terms of monetary profits from a business transaction whose risks and costs they both bear. Since a joint venture partnership company is only formed for the short term, it terminates when the purpose of the joint venture partnership company is fulfilled. Similarly, each party also contributes in the assets to start up this joint venture. Most often, companies use joint ventures as a means of infiltrating foreign markets where they see potential and seek to do business in. for instance, if a foreign company is interested in doing business in China, they will form a joint venture company with a domestic Chinese firm which will help them gain access to the Chinese market due to the experience of the domestic company which already knew the ropes of how to function in the local Chinese market. Furthermore, when foreign companies enter into joint venture partnership companies with domestic firms of the market that they want to enter and operate in, they are not the only ones who benefit from the arrangement. Domestic firms are at an advantage in this arrangement too, they benefit from the new technological and business practices that the foreign firms bring to their market which serve as a learning experience for the domestic firms, consequently expanding their horizons. The foreign companies benefit from the value provided to them by the domestic company’s pre-existing relationship with the key players in the domestic government and industry. In more technical terms, a joint venture is treated like a regular partnership business for taxation purposes. However, joint ventures that transcend the boundaries of one country and go global are subject to international trade laws as well as the internal laws of the government of the economy they plan to penetrate. (Joint Venture, 2010). According to Folta (2012), who writes about foreign joint ventures in China, talks about how joint ventures a way for foreign firms to get past the barriers of the local Chinese market and reap the benefits of business operations in the local market. While talking about the advantages of joint venture partnership companies, the author mentions several factors that come into play. Other advantages of joint venture partnership companies include the fact thet they alleviate rich, grant access to domestic markets, are easier to manage and offer benefits in terms of tax advantages. “Partnerships, Joint Ventures and Strategic Alliances” talks about the effective connection among the three entities in business. As the authors point out, joint ventures have one of the highest crash rates in the world. (Glover and Wasserman, 2003). Yet, still joint ventures are becoming a growing trend in the modern globalized world. (Gutterman, 1997). As can be deduced, this paradigm shift has been due to the vast avenue of opportunities that globalization has opened up for businesses all over the world. They have now become interested in foreign economies as lucrative sources of investment and income for their business operations and joint venture companies provide them an ideal platform to increase their reach into the market of a foreign economy they are interested in. Visconti (2003) in his book “Joint Venture” also talks about the topic along similar lines. Joint stock companies on the other hand are companies set up for business activity with the profit motive with profit divided among the owners who are the share holders in proportion to the amount of stock they own in the company. When owners invest in a joint stock company they receive shares in return for that investment. The business operations of a joint stock company are carried out under the supervision of an appointed board of directors that is important for taking all critical decisions. Similar to a joint venture partnership business, joint stock companies are also like a partnership business. However, the point of difference lies in the fact that unlike in a partnership where the partnership business dissolves in case of death of a partner, in a joint stock company if one of the owners dies the shares are deemed transferrable without any effect on the business operations of the joint stock company. In this sense, the joint stock company is said to resemble public limited corporations because there is no relationship among the shareholders and ownership is transferrable. Even though a shareholder or owner of a joint stock company is not liable completely for the joint stock company’s total debts, they are liable in proportion to their investment in the joint stock company. Thus if a joint stock company is sued for wrongdoing, all the shareholders can’t be sued and just the appointed officer has to take the fall for the entire joint stock company. (Joint Stock Company, 2008). Campbell (2009) in his book “International Joint Ventures: The comparative law yearbook of international business” talks about how joint venture partnership companies come into formation. Joint venture partnerships may be used for activities that are either entrepreneurial in nature, or not entrepreneurial in nature. However, if the joint venture company is entrepreneurial in nature, then it has to be registered as a company with a governmental authority, like the Board of Trade in Brazil. Campbell consequently introduces the concept of limited liability companies and then makes a gradual connection of them with joint stock companies. Which are governed under the law of limited liability. Joint stock companies also have to be registered with a government authority before they can release their shares into the market. Shares are sold through various financial institutions and markets. The shareholder’s rights and responsibilities are defined clearly in the shareholder’s agreement which is signed before the joint stock company comes into existence. Joint stock companies are also subject to international trade laws, taxation laws and investment laws. If there is any dispute among the shareholders, it is to be resolved using arbitration; this is explicitly stated in an arbitration contraction which all the shareholders are made to sign before the company can start its operations. Campbell’s yearbook contrasts the role and varying structure of joint venture partnership companies and joint stock companies all over the world to provide a sort of ‘compare and contrast’ about how these entities differ from country to country all over the world. Cox (1862) wrote a book about joint stock companies and how they should be treated according to the companies’ act of 1862. In an extensive manuscript, he talks about how the law of partnership says that each partner is liable for the other partners’ debts within reasonable scope of operational activity. He then talks about the concept of limited liability, which states that a partner is not responsible or liable for the debts of the other partners. This has its advantages because in joint stock companies, which are also a partnership of sorts but where there is no real connection between the various owners or shareholders, it doesn’t make any sense for one partner/owner/shareholder to be held liable for the other partners’/shareholders’/owners’ debts. He then explained about the ‘New Act’ which was concerned specifically with joint stock companies and laid out the foundations of the framework within which a joint stock company may function. Farries (1865) introduced his book by discussion on almost the same topics and the companies’ act of 1862. He talks about the formation of public limited companies which introduced and implemented the concept of limited liability where every shareholder/owner was not personally liable for the company’s debts in addition, in public limited companies unlike in partnerships, the company is considered an entity separate from that of its owners. This is how joint stock companies have evolved over time, from a partnership version to a version of public limited companies with limited liability for the shareholders and as the business organization with an identity of its own, separate from that of its shareholders. Gutterman (2002) explores another avenue; are joint venture partnership companies really the best route to opt for when doing business in the modern world? It is certainly a popular mode of business and gaining increasing popularity due to how well adjustable it is in the modern business world scenario. Far from the original manufacturing and production joint ventures, today joint ventures are involved in marketing and distribution, research and development and hybrid/combination relationships. They provide the participant companies an effective way to penetrate foreign markets. The disadvantage is that profits are shared but then again, so are risks so the negative is evened out with the positive. Further advantages include shared financial resources, ability to exploit economies of scale, technology and skill sharing and thus, efficient market penetration. References Farries, R. S. E. 1865. Joint Stock Companies. Cox, E. W. 1862. The Law and Practice of Joint Stock Companies and other Associations, as Regulated by the Companies Act, 1862. Gutterman, A. 1997. International Joint Ventures. Euromoney Books. Campbell, D. 2009. International Joint Ventures: The Comparative Law Yearbook of International Business. Kluwer Law International. Visconti, G. 2003. The Joint Venture. Voyageur Publishing Co., Inc. Glover, S. I. and Wasserman, C. M. 2003. Partnerships, Joint Ventures and Strategic Alliances. Law Journal Press. Gutterman, A. 2002. A Short Course in International Joint Ventures: How to Negotiate, Establish and Manage an International Joint Venture. World Trade Press. Joint Stock Company. 2008. The Free Dictionary by Farlex. Accessed 11 Nov 2012. Joint Venture. 2010. Legal Information Institute. Accessed 11 Nov 2012. Folta, P. H. 2012. Cooperative Joint Ventures. China Business Review. Accessed 11 Nov 2012. Read More