First, it is necessary to clarify that there exist two types of Joint Ventures - Equity Joint Ventures and Cooperative Joint Ventures. The equity joint venture is the older and less flexible type. Equity Joint Ventures must operate in the form of a Limited Liability Company, which means that the personal wealth and property of the actual individuals who are responsible for the company are shielded from corporate loss.
The most significant difference between Equity Joint Ventures and Cooperative Joint Ventures is the allocation of profits. In Equity Joint Ventures, profits must be allocated according to the ratio of the capital contributions made by the partners. In other words, if one party puts in 40% of the capital investment, they will reap 40% of total profits.
Equity joint ventures are the preferred investment vehicle for most manufacturing Joint Ventures. This being said, potential investors still must be clear about their purpose before deciding which form of Joint Venture they will use.
