Sometimes business owners, entrepreneurs, and executives have to be flexible. But they also have to be well informed when making business transactions. For example, mergers and joint ventures are fairly common, but it is crucial to understand the differences between the two before finalizing a deal.
Basic Definitions
While mergers and joint ventures both relate to business, they are quite different in practice.
Mergers happen when two or more companies voluntarily join together into one new company. For example, when the ABC Company and XYZ Limited unite to form AlphabetSoup, it is a merger.
Joint ventures form when two or more parties join together to achieve a specific goal. In this type of transaction, ABC Company and XYZ Limited might agree to form a media company together. The new company exists as a separate entity, while the two mother companies remain the same.
Let’s look at some other key differences.
Mergers and Joint Ventures Use Different Legal Structures
As noted above, a merger between two or more companies results in a new company, and the two parent companies typically cease to exist. The structure of the new company does not have to be the same as either of the parent companies.
However, companies involved in a joint venture may continue to operate independently of the new company and each other.
Ownership Is Different
Typically, the owners of companies that merge become the owners of the new company. A company formed as a joint venture is owned by the companies that created it.
Key Differences in the Parties’ Commitment
Joint ventures may be temporary or involve short-term projects. However, a merger generally is permanent – at least until the next merger.
The Scope Is Not the Same
Finally, the type of activities performed by mergers can be very different from those performed by joint ventures.
When two companies merge, they may be doing so because their business operations overlap each other. It might make more sense for the companies to form a new company that covers the scope of both companies.
However, joint ventures tend to have a more limited focus. The parent companies may decide that a joint venture addresses a specific area in which both companies are interested.
Both Mergers and Joint Ventures Are Complex Transactions
To make sure your business transactions run smoothly, consult with an experienced business lawyer.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.