ITPEC IP October 2020 Question 81

A company managed by two or more companies that provide its funding together — that is a joint venture.

In a joint venture, the partner companies invest capital, and often technology, staff or sales channels, in a new, separate company and run it together. The partners stay independent and share the ownership, control, risk and profits of the new company in agreed proportions. It is used to enter a business or market none of them could handle alone, such as combining one partner's technology with another's local sales network.

Answer (a)

Why not others:

• •(b) — cooperative relationships through mutual financial contribution and cross-shareholdings are a capital alliance (capital tie-up); the companies hold each other's shares, but no new jointly run company is set up
• •(c) — obtaining control over the counterpart by merger or acquisition is M&A; one side takes over instead of both sharing a new company
• •(d) — permitting another company to use one's technology, brand or sales rights is licensing (a franchise when a brand and sales know-how are granted together)

Key rule: Cooperation by contract (licensing) or by shareholding (capital alliance) creates no new body; a joint venture is a new company created by joint investment; M&A merges or takes over existing companies.

Business Strategy Management · AI-written, may contain errors