A joint venture is defined as 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. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants’ other business interests – Investopedia
The JV can be either informal, where a handshake seals the agreement to share a booth at an expo, or very formal with lawyers and complex agreements documenting two or more companies combining resources to develop new technologies. Benefits:
- Save money and reduce risk through capital and resource sharing
- Smaller companies are able to work with larger companies to develop, manufacture and market new products/services
- Research/Development underwritten by more than one company
The Joint Venture for the 8(a) company joining with a non- 8(a) company in the pursuit of federal business opportunities is executed in a Mentor- Protégé relationship. The two companies, let’s assume a small 8(a) and a large non 8(a), work the JV through the SBA. The companies form a new legal entity (JV-1 for example) for the mutual interest of both companies.
The purpose of the JV is to increase the number of contract wins however there are specific rules. Highlights as follows:
- The JV is limited to 3 contracts in a 2 year period.
- The 8(a) firm in the JV must receive profits commensurate with the work performed by the 8(a) firm
- The 8(a) must perform at least 40% of the work
- Mentor firm is only allowed 3 protégés at one time
- The mentor protégé agreement is required to specify the development assistance the mentor will provide the 8(a) firm.
JVs offer opportunities that a small company may not experience when going it alone. If this sounds like something you may be interested in contact your nearest SBA office and inquire about establishing a JV.