Partnership, Joint Ventures and Corporate Financing

8/8/2019 Partnership, Joint Ventures and Corporate Financing

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PARTNERSHIP,PARTNERSHIP,

JOINT VENTURESJOINT VENTURES

and CORPORATEand CORPORATE

FINANCINGFINANCING


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DEFINITIONDEFINITION

PARTNERSHIPPARTNERSHIP -- Association of two or moreAssociation of two or more

persons who copersons who co--own a business for a profit.own a business for a profit.

Combines:Combines: CapitalCapital

TalentTalent

ExperienceExperience


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Contract between partners shouldContract between partners should

specifyspecify

Name, location, and nature of businessName, location, and nature of business

Name, investment, and duties of each partnerName, investment, and duties of each partner

How new partners are admittedHow new partners are admittedHow profits and losses are divided upHow profits and losses are divided upWithdrawals of assets by the partnersWithdrawals of assets by the partners

How to settle up with a withdrawing partnerHow to settle up with a withdrawing partner

How to liquidate the partnershipHow to liquidate the partnership


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Characteristics of a PartnershipCharacteristics of a Partnership

Limited lifeLimited lifeMutual agencyMutual agency

Unlimited liability

Unlimited liabilityCoCo--ownership of propertyownership of propertyNo partnership income taxesNo partnership income taxes

Partners capital accountsPartners capital accounts


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Types of PartnershipsTypes of Partnerships

General partnershipGeneral partnership

Limited partnershipLimited partnership


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Limited Liability CompanyLimited Liability Company

Its own form of business organizationIts own form of business organization

Owners are called membersOwners are called members

L

imited liabilityL

imited liabilityMembers can participate in managementMembers can participate in managementCan elect not to pay business income taxCan elect not to pay business income tax


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WHATISAJOINT VENTURE?WHATISAJOINT VENTURE?

AA joint venturejoint venture (often abbreviated(often abbreviatedJVJV) is an) is anentity formed between two or more parties toentity formed between two or more parties toundertake economic activity together.undertake economic activity together.

The parties agree to create a new entity by bothThe parties agree to create a new entity by bothcontributing equity, and they then share in thecontributing equity, and they then share in therevenues, expenses, and control of therevenues, expenses, and control of the

enterprise.enterprise.


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JV in Real Estate SenseJV in Real Estate Sense In real estate, joint venture means that a project is developed by two partiesIn real estate, joint venture means that a project is developed by two parties

jointly. This generally happen where one party would have his land and thejointly. This generally happen where one party would have his land and theother party would be interested to develop a project on that land.other party would be interested to develop a project on that land.This generally happen where one party would have his land and the otherThis generally happen where one party would have his land and the otherparty would be interested to develop a project on that land.party would be interested to develop a project on that land.

Some time the owner of the land could not develop it because of manySome time the owner of the land could not develop it because of manyreasons such as he doesn't have the expertise or he doesn't have the fund andreasons such as he doesn't have the expertise or he doesn't have the fund andlikewise for the other party who want to develop might not have a land in thelikewise for the other party who want to develop might not have a land in theprime location where he can build up a nice project.prime location where he can build up a nice project.

So, if these two parties join together on a mutual understanding they sign anSo, if these two parties join together on a mutual understanding they sign anagreement which is termed asagreement which is termed asJoint Venture AgreementJoint Venture Agreement. This agreement. This agreementcomprises legal understand like will there be any advance or goodcomprises legal understand like will there be any advance or good--will moneywill moneybe paid by developer to land owner? Advance is the amount which abe paid by developer to land owner? Advance is the amount which adeveloper needs to pay to land owner which would be refunded by the landdeveloper needs to pay to land owner which would be refunded by the landowner after completion of the project. If any problem arises whileowner after completion of the project. If any problem arises whileconstructing, because of which they couldnt complete the project, then thatconstructing, because of which they couldnt complete the project, then thatadvance Amount will not be paid back.advance Amount will not be paid back.


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What a Joint Venture Involves:What a Joint Venture Involves:

A joint venture involves:A joint venture involves:

1. A high level of commitment, funds, time1. A high level of commitment, funds, time

2. A degree of risk2. A degree of risk3. A management voice for both parties3. A management voice for both parties4. Equity participation by each partner4. Equity participation by each partner


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REASONSFORFORMINGAREASONSFORFORMINGA

JOINT

VENTURE

JOINT

VENTURE

Internal reasonsInternal reasons

Build on company's strengthsBuild on company's strengths

Spreading costs and risksSpreading costs and risks Improving access to financial resourcesImproving access to financial resources

Economies of scale and advantages of sizeEconomies of scale and advantages of size

Access to new technologies and customersAccess to new technologies and customersAccess to innovative managerial practicesAccess to innovative managerial practices


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ADVANTAGES OF JOINTADVANTAGES OF JOINT

VENTURES

VENTURES

Combining assets or resources.Combining assets or resources.

Efficient commercialization of a technology orEfficient commercialization of a technology orbusiness conceptbusiness concept

Developing or acquiring market or distributionDeveloping or acquiring market or distributionexpertiseexpertise

Sharing of scientists or professionals withSharing of scientists or professionals with

unique skillsunique skills Financial support or sharing of economical riskFinancial support or sharing of economical risk


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ADVANTAGES OF JOINTADVANTAGES OF JOINT

VENTURES

VENTURES

Acceleration of revenue growthAcceleration of revenue growth

Ability to increase profit marginsAbility to increase profit margins

Expansion to new domestic marketsExpansion to new domestic markets New product developmentNew product development


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DISADVANTAGESOF JOINTDISADVANTAGESOF JOINT

VENTURESVENTURES

Potentially high capital cost plus ongoing financialPotentially high capital cost plus ongoing financialsupport are required.support are required.

Profitable returns may take some time to achieve.Profitable returns may take some time to achieve.

High level of commitment of staff and management.High level of commitment of staff and management. Time consuming (especially where a new venture isTime consuming (especially where a new venture is

involved).involved).

Potential for conflict with your joint venture partner.Potential for conflict with your joint venture partner.

Cultural differences and communications difficulties.Cultural differences and communications difficulties.


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Corporate FinanceCorporate Finance

is the specific area of finance dealing with the financial decisionsis the specific area of finance dealing with the financial decisionscorporations make, and the tools and analysis used to make thecorporations make, and the tools and analysis used to make thedecisions.decisions.

The discipline as a whole may be divided between:The discipline as a whole may be divided between:

long termlong term -- capital investment decisionscapital investment decisions

short termshort term -- working capital management.working capital management.

The two are related in that firm value is enhanced when returnThe two are related in that firm value is enhanced when returnon capital, a function of working capital management, exceedson capital, a function of working capital management, exceedscost of capital, which results from the longer term, capitalcost of capital, which results from the longer term, capitaldecisions.decisions.


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The five basic Corporate FinanceThe five basic Corporate Finance

functionsfunctions 1) raising capital to support company operations and investments (aka,1) raising capital to support company operations and investments (aka,

financing functions);financing functions);

2) selecting those projects based on risk and expected return that are the best2) selecting those projects based on risk and expected return that are the bestuse of a company's resources (aka, capital budgeting functions);use of a company's resources (aka, capital budgeting functions);

3) management of company cash flow and balancing the ratio of debt and3) management of company cash flow and balancing the ratio of debt andequity financing to maximize company value (aka, financial managementequity financing to maximize company value (aka, financial managementfunction);function);

4) developing a company governance structure to encourage ethical behavior4) developing a company governance structure to encourage ethical behavior

and actions that serve the best interests of its stockholders (aka, corporateand actions that serve the best interests of its stockholders (aka, corporategovernance function); andgovernance function); and

5) management of risk exposure to maintain optimum risk5) management of risk exposure to maintain optimum risk--return tradereturn trade--offoffthat maximizes shareholder value (aka, risk management function).that maximizes shareholder value (aka, risk management function).


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Corporate Financing covers:Corporate Financing covers:

Raising seed, startRaising seed, start--up, development or expansion capitalup, development or expansion capital

Mergers, demergers, acquisitions or the sale of private companiesMergers, demergers, acquisitions or the sale of private companies

Mergers, demergers and takeovers of public companies,Mergers, demergers and takeovers of public companies,including publicincluding public--toto--private dealsprivate deals

Management buyManagement buy--out, buyout, buy--in or similar of companies, divisionsin or similar of companies, divisionsor subsidiariesor subsidiaries -- typically backed by private equitytypically backed by private equity

Equity issues by companies, including the flotation of companiesEquity issues by companies, including the flotation of companieson a recognized stock exchange in order to raise capital foron a recognized stock exchange in order to raise capital for

development and/or to restructure ownershipdevelopment and/or to restructure ownership


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Corporate Financing covers:Corporate Financing covers:

Raising capital via the issue of other forms of equity,Raising capital via the issue of other forms of equity,debt and related securities for the refinancing anddebt and related securities for the refinancing andrestructuring of businessesrestructuring of businesses

Financing joint ventures, project finance, infrastructureFinancing joint ventures, project finance, infrastructurefinance, publicfinance, public--private partnerships and privatizationsprivate partnerships and privatizations

Secondary equity issues, whether by means of privateSecondary equity issues, whether by means of privateplacing or further issues on a stock marketplacing or further issues on a stock market

Raising debt and restructuring debt.Raising debt and restructuring debt.

Documents

Partnership, Joint Ventures and Corporate Financing