Classic joint ventures—creating an entity jointly owned by two or more entities—have been common in the automobile industry (and others) for a variety of reasons, such as their usefulness in offsetting high startup costs. However, interested parties can also accomplish joint ventures without an entity, through what are essentially commercial contracts. The automotive industry appears to be supplying some new rationale for forming these highly complex contracts, such as the flexibility they provide by allowing parties to avoiding a commitment to any single platform or technology at a time of fundamental industry changes.
Parties have various other reasons for choosing non-entity joint ventures. These could include a perception they may be easier to unwind if they do not succeed (not always true), or a desire to avert effort associated with the tax, accounting, governance, and other matters associated with the formation of a jointly owned entity. No matter the underlying reasoning and approach, there are a number of ways to maximize the chances of success.