Two terms in corporate business and finance are prevalent and familiar if you want to expand your business or gain advantages, technical resources, and money.
Mergers and Joint Ventures are the terms that help to grow the business successfully, and often, these terms are confused with one other.
Key Takeaways
- A merger combines two or more companies into a single entity. A joint venture is a business agreement between two or more companies to work together on a specific project or goal.
- Mergers involve the transfer of ownership from one company to another, while joint ventures involve sharing resources and risks between companies.
- Mergers create a new company, while joint ventures allow the participating companies to retain their identities.
Mergers vs. Joint Ventures
Mergers involve the combination of two or more companies into a single entity. In a merger, the companies involved agree to combine their assets, liabilities, and operations into a new company. Joint ventures involve two or more companies working together on a specific project or venture. In a joint venture, the companies involved maintain their separate legal identities.
Mergers mean when two companies of the same size join together to form one. Both companies surrender their stocks to function as one.
A Joint Venture has shared ownership where two companies are owners simultaneously and share profits, returns, risks, and governance.
Comparison Table
| Parameters of Comparison | Mergers | Joint Ventures |
|---|---|---|
| Commitment | Mergers require a lot of dedication to operate the entity efficiently. | Joint Ventures require less commitment when compared to mergers. |
| Term | Mergers are for long periods. | Joint Ventures are for the short term and are formed for fast projects. |
| Ownership | In 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. |
| Scope | Mergers have a more extensive range to grow. | Joint ventures have minimal scope to grow. |
| Motive | In mergers, the motive is to create opportunities and benefits for the company. | In a joint venture, the only motive is to reach a specific goal or objective. |
What are Mergers?
Mergers or acquisitions transfer all the units, ownerships, and entities amalgamated into one entity or business. Mergers can be very risky. Almost 50% of mergers fail, according to a study.
Whatever the result, it changes the nature of your business. Mergers happen legally, whereas an acquisition occurs when a big company takes over a small firm’s assets.
There is not much difference between mergers and acquisitions because both result in consolidating 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.
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 occur between two businesses with the same customer base.
What are Joint Ventures?
A joint venture is a term that describes ownership, risks, and 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.
Joint ventures happen when companies want more resources, such as knowledge or technology, far from an individual entity.
Joint ventures involve a dark side, like adverse outcomes and 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
- Mergers have a larger scope to grow. Joint ventures have minimal scope to grow.
- 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.
- https://journals.sagepub.com/doi/pdf/10.1177/0003603X0104600406
- https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/antil64§ion=33
Last Updated : 11 June, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
The article is a bit repetitive. It could use some editing for conciseness
I have to agree with you, Luke. It could be more straight to the point.
I found the explanations quite dull and unsatisfying
I have to side with Uwilkinson, it’s a bit uninteresting
I couldn’t disagree more, Uwilkinson. I think the choice of words makes it quite engaging
The article provides a clear distinction between mergers and joint ventures.
So true, Fox. It does a great job clarifying the differences between the two terms.
The explanation about joint ventures is quite intriguing.
Absolutely, Lee. It’s quite compelling and detailed.
The explanation about the different types of mergers is quite enlightening.
I found it very informative and well-structured
That’s true, Louis. The examples given are quite illustrative
The tables and charts included are a helpful resource for a better understanding of the topic
Great point Henry. The data visualization helps a lot in understanding the concepts better
Absolutely, Henry. They add a lot of value to the article
The article seems to be missing some crucial information about the potential risks involved in mergers and joint ventures
I agree, Edwards. It would be beneficial to have more information about the risks.
Well spotted, Edwards. Those details are indeed important.
There’s a typo in the third paragraph. Overall, a good piece.
This text kept my attention at all times. The authors’ style is clear and understandable
Absolutely agree, Simpson. It is written in a very professional manner
I couldn’t stop reading until the end. Compelling piece
The real-life examples provided are quite enlightening
I couldn’t agree more, Carmen. It makes the concepts easier to grasp
Agreed. The examples are a highlight of the article.