Joint venture: a complete guide with types, advantages, risks and examples

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In the day-to-day operations of business, collaboration can be the key to faster and smoother growth than going it alone. That's why many companies decide to form a joint venture, or, to use the popular term, a joint company, in order to share investments, risks, and expertise , and to pursue opportunities that would be too great to handle on their own.

Although the term "joint venture" has entered common parlance, in Spanish it's more typical to use terms like "empresa segunda," "negocios en común," or "subsidia segunda." In fact, organizations like Fundéu recommend these equivalents, and in practice, they describe an agreement in which several companies collaborate on a specific activity while maintaining their legal independence. The idea is to combine resources, knowledge, and operational capacity to achieve a common goal, usually for a pre-agreed period, without losing the individual identity of each partner.

What is a joint venture and why is it used?

A joint venture is essentially an agreement whereby two or more companies collaborate on a specific project or line of business. The distinguishing feature is that each participant remains a separate entity, while for this initiative they operate under common rules and share contributions, profits, and losses. In common usage, joint venture refers both to purely contractual agreements and to the creation of a new shared company, regardless of whether the contribution is in the form of capital, technology, brand, sales network, or specialized personnel.

In practical terms, these alliances pursue goals such as entering new markets, accelerating product development, sharing high initial project costs, or gaining a competitive edge. They are typical in sectors that demand significant investment or highly specialized expertise, such as energy, construction, technology, pharmaceuticals, logistics, and telecommunications , among others.

It's worth emphasizing that the partners typically continue operating their regular businesses as usual. The joint venture functions as just another business within each party's portfolio, and its results are recorded according to the chosen legal structure and the terms agreed upon in the partnership agreement. Its duration is usually limited, as it's designed for a specific timeframe, although it can be renewed or expanded to include new collaborations if the experience has been positive and clear synergies exist.

Another key feature is that a joint venture is not the same as a merger. In a merger, only one company remains, while in a joint venture, the participating companies continue to exist and, if necessary, create a third company for the shared project. Put simply: in a merger, A or B disappears; in a joint venture, A and B remain, and, if needed, C is created to coordinate the agreed-upon joint activity.

From a linguistic point of view, the English origin of the term "joint venture" alludes to joining forces and assuming shared risks. The official dictionary of the Royal Spanish Academy does not include it, but technical works do. In any case, in Spanish it is perfectly valid to use "empresa segunda" or "filial segunda," clearer terms for the general public and in line with recommended usage. This attention to language does not prevent the expression "joint venture" from continuing to be frequently used in the specialized press.

How it is structured and how it works in practice

A joint venture can be structured in several ways. On the one hand, there is the purely contractual approach: the parties sign a collaboration agreement that defines the scope of the project, contributions, governance, and financial distribution, but a new company is not formed . On the other hand, there is the corporate approach, in which a company with its own legal personality is created , owned by the partners in the percentage they agree upon, with its own separate administration, accounting, and operations.

In Spain, there is also the UTE (temporary joint venture), recognized by law, which is used to jointly carry out works or services for a specific period. It is a widely used tool in sectors such as public works and construction , and it operates on the same principle of combining capabilities without merging into a single company. Other legal systems, such as Argentina's, have similar structures.

Whether contractual or corporate, the contract is the heart of the joint venture. It must clearly define the objectives, scope, roles of each party, decision-making mechanisms, negotiation techniques , financing model, profit and loss distribution, disclosure obligations, intellectual property treatment, dispute resolution, and exit strategies . It should also specify the duration, grounds for early termination, and, if applicable, purchase or sale rights between partners (tag-along, drag-along, options, etc.).

Regarding management, it is common practice to establish a joint committee with representatives from the participating companies, which approves the budget, business plan, and strategic decisions. Day-to-day operations can be handled by the joint venture's own team or by staff provided by the partners. The idea is that governance distributes control and responsibilities in proportion to contributions and objectives, according to the functions of an administrator . Accounting, for its part, will reflect the results in each partner's account according to their share and as stipulated in the rules and the contract.

Main types of joint venture

The most common models are distinguished by their legal basis, the type of contributions, or the position each company occupies in the value chain. These are the most frequent types and their characteristic features, with examples of use and typical advantages in each case. The underlying objective is always to find the structure that best fits the project, the sector, and the level of commitment required among the partners.

A joint venture, also known as a corporate or equity joint venture, involves partners contributing funds and assets to a newly created company, distributing shares, and sharing profits and losses according to their percentage ownership. It is typically used for large-scale projects requiring professional management and a clear framework for investment, financing, and control. It provides a clear legal separation and facilitates attracting external funding.

Contractual joint venture. There is no new company formed, but rather an agreement that governs collaborative work. It is used for limited initiatives, with less administrative burden and greater flexibility. It can be ideal when the parties want to collaborate precisely without assuming the costs of a permanent structure, while maintaining maximum operational autonomy.

A co-investment joint venture is a variant where the dominant feature is the contribution of capital toward a shared objective, with a focus on economies of scale, entry into new markets, or capacity expansion. It is a good fit when companies want to combine financial resources and share risks in a project that, on its own, would be too costly or uncertain.

Strategic joint venture. Here, the emphasis is not so much on money as on complementary capabilities: technology, know-how, brand, distribution channels, or access to customers. This is common in knowledge-intensive sectors, where combining skills accelerates innovation, reduces time to market, and strengthens the joint value proposition.

Vertical joint venture. This occurs between companies in the same industry located at different stages of the value chain. For example, a raw materials producer with a processor and a distributor. Its aim is to optimize supplies, reduce costs, improve quality, and gain control over the product's journey to the end customer, with superior operational synchronization.

Horizontal joint venture. It unites companies that operate at the same stage of the supply chain and compete with each other. The motivation is to take advantage of economies of scale, share technological platforms, or strengthen negotiating power with suppliers and customers, while maintaining clear boundaries to avoid competitive conflicts and ensure the protection of sensitive information.

Advantages that companies typically look for

Joint ventures are compelling because of their ability to multiply resources and share exposure. They share several advantages with other collaborative models, but add a more balanced framework for sharing risks and benefits, which can be critical in certain sectors. Generally speaking, they allow for achieving more with less individual risk.

• Access to markets and customers. Leveraging local knowledge, licenses, or the partner's commercial network facilitates entry into new countries or segments.
• Risk and cost sharing. Projects that would require high investments become viable by distributing the financial and operational burden.
• Combination of capabilities. Technology, talent, brand or channels that, together, generate a more powerful proposition and accelerate innovation.
• Economies of scale and efficiency. Optimization of production, distribution and purchasing, with a direct impact on costs and margins.
• Improved access to financing. A vehicle shared with solvent partners and a solid plan is usually more financeable.

Risks and challenges to consider

Like any strategic alliance, it is not without its complexities. Friction can arise from cultural differences, power imbalances, or misaligned expectations. The key to minimizing these lies in carefully designing the contract, maintaining balanced governance, and ensuring open and consistent communication from day one to anticipate conflicts and resolve them swiftly.

• Conflicts of interest and decision times. Disagreements over priorities or investments can slow down the project if there are no clear rules.
• Partial loss of control. It is inherent in any collaboration; it is advisable to set vetoes, quorums and reserved areas.
• Risk of information leak. Robust firewalls and confidentiality agreements must be established.
• Partner dependence. If the key contribution is concentrated in one part, it can generate a significant vulnerability.
• Legal and regulatory complexity. Especially when there are companies from different countries or regulated sectors.

Who uses joint ventures and in which sectors

This format is used by everyone from large multinationals to SMEs and startups. The former use it to expand into new territories, share risks in massive projects, or acquire capabilities that accelerate their roadmap. SMEs see these alliances as a way to achieve scale leaps impossible on their own, while startups find partners with capital, distribution channels, and experience to validate their product and reach the market faster and with greater credibility.

It is also not uncommon to see non-profit organizations and NGOs creating joint ventures with private operators to expand their impact, or public-private partnerships for R&D projects, infrastructure, or strategic services. Whenever the legal framework allows, public participation can provide stability, funding, and alignment with objectives of general interest.

By sector, the recurring list includes technology, energy and natural resources, construction and infrastructure, financial services, pharmaceuticals and biotechnology, transport and logistics, and telecommunications. In all of these, barriers to entry, operational complexity, or the requirement for initial investment make the structured approach of joining forces particularly attractive.

Real cases and known alliances

The theory takes shape when we look at concrete examples. In the consumer goods sector, the historic collaboration between McDonald's and Coca-Cola began in the mid-50s and has remained a benchmark of successful cooperation: one secures a massive sales channel; the other guarantees a global presence with preferential terms. This relationship shows how a well-designed alliance can be consolidated over decades and generate sustained benefits for both parties.

In telecommunications, the merger of Nokia and Siemens to create Nokia Siemens Networks was a move to gain scale and compete with Asian manufacturers. It began as a 50/50 joint venture and, over time, evolved until Nokia took full control—an outcome that is also typical when the opportunity arises to fully integrate operations.

Closer to home, the alliance between El Corte Inglés and Starbucks combined prime locations and high customer traffic with a well-known coffee brand, fostering expansion and creating a distinctive consumer experience in shopping centers. This exemplifies how a partner with premium spaces and another with a powerful brand can create added value for the consumer.

In the financial sector, BBVA and Allianz launched a bancassurance joint venture to boost non-life insurance in Spain, combining the bank's customer knowledge and network with the insurance group's innovation and product capabilities. Operations like this demonstrate the potential of a shared structure to develop specific business lines with clear governance and objectives.

Another illustrative example is the collaboration between Repsol and El Corte Inglés to deploy convenience stores at service stations under a single brand. The combination of customer traffic, logistics, and retail offers a natural synergy that multiplies the space's efficiency, with management that adjusts over time according to each partner's strategic priorities.

In the startup ecosystem, Cabify and Glovo collaborated to boost operations in Latin America by integrating messaging networks and local expertise. This type of partnership allows young companies to scale faster, reduce the learning curve in new markets, and share launch costs—three critical factors when the window of opportunity is narrow.

There are also major international alliances like Renault-Nissan or the cooperation between Air France and KLM, where joint ventures and long-term agreements have fostered synergies in product, fleet, routes, and procurement. The common thread is the same: when there is genuine complementarity and an appropriate governance framework, collaboration can sustain competitive advantages that are difficult for independent competitors to replicate.

Essential contractual aspects

For a joint venture to work, the contract must be surgically precise in its key aspects. Among other things, it must define objectives and scope, ownership and management structure, contributions from each party, profit distribution, duration and extensions, decision-making mechanisms and majorities, financing obligations, compliance standards, intellectual property, confidentiality, non-compete agreements, brand policy, reporting, audits, dispute resolution (e.g., arbitration), and exit or termination conditions.

Furthermore, it is good practice to agree from the outset on the valuation of each partner's contributions (whether in cash or in kind), establish rules for deadlock situations, and reserve rights for strategic decisions that affect the scope, budget, or significant changes to the plan. If the project involves different jurisdictions or regulated sectors, it is advisable to integrate the legal and tax aspects with local advisors to avoid surprises later on.

Best practices for negotiating and managing the alliance

Selecting the right partner is half the battle won: ideally, there should be a clear fit between each party's strengths and weaknesses, compatible cultures, and aligned expectations. Then, concrete objectives, measurable success indicators, and a realistic timeline are essential. A detailed contract that distributes risks equitably and leaves little room for ambiguity is the best insurance policy for navigating the inevitable moments of tension.

During implementation, transparent and regular communication, discipline in following the plan, and the flexibility to adjust the strategy when market conditions change make all the difference. It also helps to plan from the outset how intellectual property will be managed, what to do if the project performs better than expected, and how an eventual sale, purchase, or orderly liquidation will be handled.

Differences with mergers, acquisitions and strategic alliances

A merger integrates companies into a single entity, where at least one of the pre-existing companies disappears, resulting in a unified structure, balance sheet, and management. An acquisition, on the other hand, implies the control of one company by another. A joint venture lies somewhere in between: a specific area of ​​focus is shared, but the parties retain their independence. Unlike an informal strategic alliance, a joint venture has a contractual framework and often a specific vehicle that reinforces operational and financial discipline.

The choice between these options depends on the objective, the desired level of integration, and the time horizon. If the aim is intensive but limited cooperation, with an explicit sharing of risks and benefits, a joint venture usually offers the right balance. If the goal is full integration without overlap, a traditional corporate transaction probably makes more sense.

Looking ahead, joint ventures will continue to be a versatile tool for entering markets, innovating, and scaling strategically, especially when the environment demands significant investment and specialized expertise. Identifying the right partner, negotiating a sound contract, and managing the venture rigorously are the three pillars that increase the likelihood of success and prevent the usual frictions along the way from derailing an opportunity that, if handled well, can translate into sustained value for all involved.