Introduction:
Joint venture defined as the two companies jointly invested capital, owns a stake, respectively and share the profits, spending, risk and control of the company. There are different from strategic alliances. Strategic alliance has nothing to do with the company's equity and less precise in form. A joint venture refers to the enterprises designated for specific between two or more people set up partnership or cooperation agreement. Joint venture may set up for a project or program and continued cooperation in the form of Joint Venture Company.
The formation reason of the joint venture:
The joint venture company in Hong Kong and mainland China is very common, usually in a domestic company was established in the form of cooperation with a foreign company. By means of this form of cooperation, domestic companies can get its deficiency of technical equipment, while foreign companies can also use the domestic companies to the country's familiar with political relations. Joint venture accounting standards may not meet accounting defined loosely applied to the arrangement. So, have a correct identification of the joint venture is very important.
The two companies cooperation and set up a joint venture company for the following reasons:
1. The government's policy to encourage or laws
Based on the local government encourage or legal constraints, such as the Chinese government limits for sino-foreign joint venture established in the territory is one of China's legal person and shall be under the jurisdiction of and protection by China's laws. Hong Kong tax and free access policy is also the cause of the joint venture.
2. To enter foreign markets
3. The complementary resources
4. Spread risk
To meet the definition of the joint venture that the arrangement must have more characteristics as below:
- It must be a separate legal entity
- The entity must be a common control to the parties
- It must be able to through their equity investment to the joint venture to jointly controlled entity