Joint Venture (JV) Interview Questions & Answers

Question 1. What Types Of Joint Ventures Are There?

Answer :

There are many examples of collaborations between businesses – common ones are the following structures where two or more people share resources and risk:

1. setting up a separate Joint Venture company where each party has a shareholding and can appoint directors to carry out a specific (and often finite) project such as development of a new product
2. contractual arrangements such as entering into a distribution agreement
3. forming a partnership
4. merging two businesses.

The rest of this article covers the first structure above where each person in the Joint Venture has a shareholding and appoints directors.

Question 2. Who Will Be Part Of The Joint Venture?

Answer :

The people contributing the assets to the Joint Venture, or JV, will all be parties to the Joint Venture Agreement.

Question 3. Will The Joint Venture Company Or Other Vehicle Itself Be A Party To The Joint Venture Agreement?

Answer :

Usually, Yes so that shareholders can enforce against the company.

Question 4. What Issues Do I Need To Consider When Looking For A Joint Venture Partner?

Answer :

• Look for a JV partner with complementary strengths: eg a software product which you can distribute through the Joint Venture.
• Take time to understand fully what your partner’s purpose and objectives will be from the JV.  You will need to be able to agree objectives that suit both of you.
• You will also need to reach agreement on a whole range of other issues as well as the JV agreement.
• Consider at the outset what happens when the JV comes to an end. This  can make it difficult to collaborate with a competitor or with a business that is likely to compete with you in the future.

Question 5. How Do I Negotiate Heads Of Terms?

Answer :

The Heads Terms document sets out the main principles for the Joint Venture and the steps and documents required to get it set up. Read more about negotiating Heads of Terms Agreements.

Question 6. What Is The Best Way To Structure A Joint Venture?

Answer :

1. Usually the JV parties form a separate limited company for the Joint Venture  so each has limited liability (up to amount of share capital invested) should the Joint Venture  not work and become insolvent.
2. However the tax position must be assessed to start with because transferring significant assets into the Joint Venture can have unwanted tax consequences. You should check with your tax advisers.
3. Sometimes a partnership or a limited liability partnership is used instead.
4. If you do not require management involvement in the  Joint Venture, it may be best to use contractual arrangements rather than to create a separate Joint Venture  entity.

• For example, a designer could simply license his or her intellectual property rights in the design to another business to exploit in return for royalty payments. You should identify what other agreements are needed between the Joint Venture and the shareholders – eg licences to use software, brand names, premises, secondment of staff etc.

Question 7. What About Financing Joint Ventures?

Answer :

You and your Joint Venture partner will need to agree:

• What proportion (if any) of the initial finance will the parties themselves provide and how much will be provided from external sources.
• If third party funding is being sought, what security and/or recourse to the parties themselves will the lender(s) require.
• Will the parties’ initial investment be in cash and/or by contributing assets.
• If the funding will be through debt rather than equity, or vice versa.

What arrangements will there be for funding, on a continuing basis:

1.  the working capital requirements
2.  losses incurred by the joint venture; and/or
3.  development and expansion costs

• Will each party be required (or entitled) to contribute to continuing calls for funding, pro-rata to its original investment or otherwise
• What happens if one of the parties defaults.

Question 8. What Assets Can Be Put Into Joint Ventures?

Answer :

Any asset can be put into a Joint Venture e.g. employees, intellectual property, offices, customers and suppliers and their related contracts.

Contributions can be by outright transfer, or by a lease or licence to the Joint Venture for a fixed or indefinite term. Separate documents will be required for the transfer of each asset to the Joint Venture .

The contributed assets will need to be valued and agreed with the Joint Venture partner.

You will need to agree if all contributions of assets can be made simultaneously, if you need any regulatory approvals or consents third parties (including lessors, licensors and lenders) or how required for any transfer. If not, the availability of all or any particular asset(s) can be a condition precedent to the establishment of the Joint Venture.

Question 9. What Legal Agreements Are Needed To Set Up A Joint Venture?

Answer :

If you are forming a new Joint Venture  company, a Joint Venture Agreement and the new company’s articles of association are crucial.

Points that may be covered in these documents or in separate agreements include:

• the financing arrangements for the Joint Venture
• agreements not to compete with the Joint Venture
• arrangements for licensing or transferring intellectual property in inventions, brands, designs or copyright works such as plans or manuals to the Joint Venture
• agreements on any services or supplies you will provide to the Joint Venture
• confidentiality agreements
• how any disputes will be handled
• how the partners can exit the Joint Venture
• any agreements that will continue after the Joint Venture is terminated.

Question 10. What Is A Shareholders Agreement?

Answer :

A Shareholders Agreement can be another name for the Joint Venture Agreement. It sets out the agreement between the shareholders showing how they will operate the Joint Venture, how they will make decisions and vote as the shareholders and directors.

Question 11. What Are The Shareholders Rights In A Joint Venture?

Answer :

The shareholders will need to agree:

• How will ownership of the Joint Venture will be divided and what voting rights the parties will  have as shareholders
• If there will be separate classes of shares – eg because each class of shares will have different ownership, dividends and or voting rights
• If shares of the same class will be capable of being held by more than one person
• If there will be any special voting rights attached to any or all shares
• What quorum and notice requirements will apply for shareholder meetings
• if there be any limitation on possible locations for shareholders’ meetings

Question 12. What Is Minority Shareholder Protection In A Joint Venture?

Answer :

If a shareholder owns less than say 50% of the Joint Venture it may want to protect itself in the following circumstances:

The majority shareholder forcing through voting on certain important issues at shareholder meetings ( e.g. changing the business, adding new shareholders, issuing new shares, buying new businesses or selling parts of the business)

Similar protections and any remedies can apply to board and/or director level voting as well.

Question 13. How Do We Take Profits From The Joint Venture?

Answer :

Profits from Joint Venture companies are commonly distributed through dividends.

Of course, the ability of the Joint Venture  to pay dividends will depend on its cashflow position. Depending on the circumstances, there may also be other more tax-effective ways of realizing part of the value of your investment in the Joint Venture. Where a Joint Venture is structured as a partnership, profits are automatically shared between the partners as specified in the partnership agreement. The partnership agreement should also specify what cash payments partners can take from the partnership. If there is no separate joint venture entity, there will be no need to ‘take’ profits from the joint venture – the profits will in any case arise within your (or your Joint Venture partner’s) business.

Question 14. Give The Journal Entry Under The Method Where Separate Set Of Books Is Kept When Cash Contributed Or Invested Or Paid- In-by Co- Ventures?

Answer :

 Joint Bank A/C  Dr                xxx 

To Respective Co-venture A/C          xxx

Question 15. What Are The Disadvantages Of Joint Venture?

Answer :

• Setting unrealistic objectives that may not be completely clear in advance and not aligned to a common goal.
• Making poor tactical decisions caused by a misunderstanding of the roles of each company.

Question 16. What Is The Difference Between Joint Venture And Consignment?

Answer :

• The parties to a joint venture are called co- ventures whereas the parties to a consignment are called consignor and consignee.
• In a joint venture all the co- ventures bear the risk whereas in consignment only the consignor bears the risk.

Question 17. What Is The Difference Between Joint Venture And Partnership?

Answer :

Joint Venture involves two or more companies joining together in business. In partnership, it is individuals who join together for a combined venture.

Question 18. Name The Accounts Prepared Under The Method Where No Separate Set Of Books Is Kept ?

Answer :

• Joint Venture Account 
• Other Co- ventures Account

Question 19. What Is Co- Ventures Account?

Answer :

This is the capital account of the venture relating to venture. This account is credited by the capital contributed by the ventures, goods supplied by them from their own stock, expenses made personally by them etc whereas this account is debited for any withdrawal or any asset taken from the venture.

Question 20. What Is Joint Venture Account?

Answer :

This account represents the results of the business, that is, profit or loss. This account is debited by the cost of goods, expenses,goods supplied by the ventures etc and are credited by sale proceeds, unsold stock, stock taken by ventures etc.

Question 21. Explain The Meaning Of Memorandum Joint Venture Account?

Answer :

It is prepared through memoranda i.e. transactions are directly entered in the Memorandum Joint Venture Account. It is merely a statement showing profit or loss on venture.

Question 22. What Is Joint Venture?

Answer :

A joint venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.This task can be a new project or any other business activity.The venture is its own entity, separate and apart from the participant's other business interests.