Question

Equity joint ventures do not pose both opportunities and challenges for the companies involved.

True False

Equity joint ventures may pose both opportunities and challenges for the companies involved.

True False

Answer 1

Equity joint ventures do not pose both opportunities and challenges for the companies involved - False

Equity joint ventures may pose both opportunities and challenges for the companies involved-True

Explanation:

An equity joint venture (EJV) is a two-company deal to enter into a separate joint venture.

Opportunities:

Equity Joint Undertakings are helpful in reducing entry barriers – high costs and specialisation needed in some industries or ventures to start business. Both companies may provide their field of expertise and provide a portion of the equipment and capital required to complete the project. Combining synergies also leads to economies of scale that decrease production costs per unit. Reduced cost of production raises the margins and benefit that no company could have achieved alone .

Challenges

1. Shareholders ' rights in companies are generally proportionate to their equity holdings. It is also necessary for a minority JV partner to ensure that there is ample say in the business of the company so that the Minority stake is not misrepresented.

2. Situation of deadlock ,  it sholud be  imperative among the parties on the way forward to joint venture there sholud be proper mechanism to solve the situation of deadlock , if it may arise.

3.Dispute Resolution should be  developed in the JV documents to settle conflicts between the JV partners. For example, parties may agree that the same thing would be resolved by arbitration if their senior management fails to settle a dispute by mutual talks.

4. Mechanism of Exit must  be integrated into a documentation to promote an acceptable exit for its investment that can pose a serious challenge in future. In such situations, parties must negotiate carefully their respective rights in order not to end up with a sour deal.