Difference Between Mergers and Joint Ventures

Mergers mean when two companies both of the same size join together to form one company. Both the companies surrender their stocks to function as one.

A Joint Venture is shared ownership where two companies are owners at the same time and share profits, returns, risks, and governance.

Comparison Table Between Mergers and Joint Ventures

Parameters of ComparisonMergersJoint Ventures
CommitmentMergers require a lot of commitment to operating the entity efficiently.Joint Ventures require less commitment when compared to mergers.
TermMergers are for long terms.Joint Ventures are for the short term and are formed for short projects.
OwnershipIn a merger, ownership of a new entity lies with both the companies’ owners.In a joint venture, ownership is owned by the company that started it.
ScopeMergers have a larger scope to grow.Joint ventures have minimal scope to grow.
MotiveIn mergers, the motive is to create opportunities and benefits for the company.In a joint venture, the only motive is to reach a certain goal or an objective.

What are Mergers? 

Mergers or acquisitions are the transfer of all the units, ownerships, and entities that are amalgamated into one entity or business. Mergers can be very risky. Almost 50% of mergers fail, according to a study.

Whatever be the result, it changes the nature of your business. Mergers happen legally, whereas acquisition happens when a big company takes over all the assets of a small firm.

There is not much difference between a merger and acquisitions because both result in a consolidation of stocks and assets to form one enterprise. There can also be a reverse merger when a private company is listed publicly for a short period of time.

There are various types of mergers. A horizontal merger takes place when two companies are rivals to each other and share the same market. Cogeneric Mergers take place between two businesses when they have the same customer base.

What are Joint Ventures?

A joint venture is a term that describes ownerships, risks, profits between two companies. It happens when a company wants to acquire a new market with the help of another company. It is for a short period of time.

Joint ventures happen when companies want more resources such as knowledge or technology and which is far reach from an individual entity.

Joint ventures involve a dark side like negative outcomes, unethical behaviors by companies and organizations with evil intentions. In India, there are no separate laws regarding Joint ventures, and it is treated at par with domestic companies only.

Main Differences Between Mergers and Joint Ventures

  1. Mergers have a larger scope to grow. Joint ventures have very limited scope to grow.
  2. In mergers, the motive is to create opportunities and benefits for the company. In joint ventures, the only motive is to reach a certain goal or an objective.

Conclusion

Both Mergers and Joint ventures are formed to gain benefits in the business. Apart from these, both mergers and joint ventures have their pros and cons.

There is a reduction of competition when mergers are done and also an increment in the market share. Whereas in a joint venture, as you have shared ownership, you have to share the profits, and also very little control is there as an owner.

Sometimes there is an undesired outcome or uncontrolled increase in the operating cost. If we count pros, it widens the scope very fastly.

References

  1. https://journals.sagepub.com/doi/pdf/10.1177/0003603X0104600406
  2. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/antil64&section=33

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