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Is it best to pursue a joint venture before a merger?

On Behalf of | Apr 28, 2021 | Mergers & Acquisitions

Many corporate entities decide to pursue a merger because they want to pool their talents or assets and put forward a united front. On the flip side of the coin, countless parties think they’d work well with one another yet would ideally like to give it a trial run before formalizing their relationship.

Many companies form a joint venture to test out how well they work with one another before permanently cementing their relationship. You may want to learn more about the pros and cons of doing this before deciding what option is best for you.

What are the main differences between joint ventures and mergers?

Mergers require companies to join together as a single corporate entity. In contrast, joint ventures allow two parties who come together to maintain their own companies and create a third for their collaborative effort.

What benefits do entities derive by establishing a joint venture over a merger?

Mergers require companies to formally enter into a legal relationship that can be disruptive to their business and logistically challenging to unravel if it doesn’t work out. The legal wrangling involved in setting up a joint venture is less involved, and thus it’s easier for parties to back out of it if their startup efforts don’t go as planned.

Determining what’s the best option for your business

You’ll need to start by creating a checklist of assets that both sides plan to bring to the table in this collaborative effort. You’ll then want to discuss operational details as this might impact whether you pursue a merger or joint venture.

An attorney can highlight some other details you’ll want to consider when determining which option is best for you. They can then aid you in drafting a contract solidifying your relationship.