Meaning and Features of Joint Venture Account
A Joint Venture Account is an agreement where two or more parties join to create a partnership for a specific business venture or purpose for a particular period.
Two individuals or firms join to create a partnership for a specific purpose for a short duration or it might be temporary also. This partnership does not use the name of the company. The profits or losses are shared in the agreed ration. Some of the features of Joint Ventures are discussed in this article.
What is a Consignment Agreement?
If goods are sent by their owner to the dealer or the agent who accepts to sell the goods, it is done under a consignment agreement. Here the owner is referred to as the consignor and the other party is referred to as the consignee. The consignee has the right to return the goods without any obligation, in case they are not sold. The consigner remains to be the owner until the goods are sold.
Features of Joint Venture Agreement
The features of the joint venture are discussed below:
Duration: This venture is formed for a short duration and so, it is termed as a temporary partnership.
Parties: The parties or the individuals who join to form this venture are called the co-venturers.
Funds: The funds used for each business are brought to the joint venture account.
Sharing of Profits or Losses: The profits or losses are shared as per the terms agreed between the co-venturers. If there is no such agreement, it is shared equally.
Computation of Profits or Losses: The profit or loss is computed by the co-venturers on the completion of their business or venture.
Difference Between Consignment and Joint Venture
There are a lot of differences between consignment and joint venture accounts. Some of the differences between a joint venture and consignment are explained below.
Meaning: Joint venture is a temporary partnership between two or more parties for a specific business whereas Consignment is just an act of sending the goods by the owner to the seller to sell the goods.
Parties: The parties in a joint venture are called co-venturers whereas in a consignment act they are referred to as the consignor and the consignee.
Relationship: In a joint venture, the relationship between the parties are like partners whereas in a consignment it is that of a principal and agent.
Rights: The co-venturers in a joint venture have equal rights whereas in a consignment, the consignor has the rights of the owner or the principal and the consignee has the rights of a seller or an agent.
Share of Profit/Loss: In a joint venture, the profit or loss is shared as per the agreement whereas in a consignment the consignee receives a commission based on the sale of goods.
Ownership: In a joint venture, the co-ventures are the owners whereas in a consignment only the consignor remains the owner.
Communication: In a joint venture, the parties keep sharing the information regularly whereas in a consignment the consignee just sends an account to the consignor.
Maintenance of Accounts: The co-venturers maintain accounts in various methods as agreed in their venture, whereas the parties of the consignment have only one method of accounts maintenance.
Continuity: In a joint venture, the business comes to an end once the purpose is completed whereas it depends on the consignor and the consignee to decide on the continuity.
Basis of Accounting: In a joint venture, they follow the cash basis of accounting whereas in a consignment they follow the accrual basis of accounting.
Difference between the Joint Venture and Consignment Chart
Joint Ventures' Purpose:
The number of joint ventures that can be formed is limitless. Joint ventures can be formed by two or more companies from the same industry, or by two companies from different industries, or by two companies from separate countries, or by two companies from different industries and countries. As a result, the scope of organizing a joint venture is limitless, and they can be formed and profited anywhere mutual collaboration is required.
Joint ventures are particularly widespread in the oil business, and they frequently involve a local and a foreign company. In the oil industry, JVs are frequently considered as a feasible business strategy because the firms can complement their capabilities while the JV provides the foreign company with a geographic presence. The most well-known company is Fuji-Xerox. P&G chose a joint venture with Godrej primarily to gain access to the company's distribution network and manufacturing facilities.
FAQs on Features of Joint Venture Accounts
1. List the different types of Joint Venture.
Depending on the various types of businesses that the parties are trying, there can be different types of joint ventures. Generally, there are three most common types of joint ventures. These are:
Limited Co-operation: This is a type when the parties or the co-venturers agree to join with another business in a limited and specific way.
Separate Joint Venture Business: This is a type when the party sets up a business perhaps a new company to handle a specific contract.
Business Partnership: This is a type where two or more businesses are merged to form a business partnership or limited liability partnership.
So, one should consider before choosing the right venture partner and also the type of venture depending on the nature of the business planned for.
2. What are the benefits of Joint Venture?
Joint Venture is a way of connecting two or more various resources and expertise to support a business to achieve good economical results. There are numerous benefits to joint Ventures.
The co-venturers get access to upcoming markets and distribution networks. They experience increased capacity. Sharing of costs or liability reduces the risk factor for the co-venturers. The co-venturers get access to better expertise, specialized staff, and other resources like technology and finance.
The co-venturers can use the partners’ funds for the growth of the business and customer database to market the product. The services can be exchanged for their respective existing customers. Since it’s a temporary arrangement the co-venturers need not get committed for the long term. In the case of divestiture and consolidation, joint ventures give way to come out of non-core businesses.
3. What is a joint venture?
A joint venture is formed when two or more separate companies from different countries agree to work together. The companies agree to contribute to the joint venture's equity capital and administer it for their mutual benefit. Joint ventures have been more common in India as a means of attracting not only foreign cash but also foreign technology.
For example, HCL and Hewlett-Packard of the United States agreed to form HCL-HP to build a multipurpose factory in NOIDA. means of attracting both foreign wealth and foreign technology.
4. How many different methods may a joint venture be formed?
A joint venture is an agreement in which two or more partners participate in the equity capital of a new enterprise. In other words, a joint venture is formed when two or more independent businesses unite to form a new company.
There are three ways to form a joint venture:
(i) A foreign and an Indian company join forces to start a new enterprise.
(ii) An Indian corporation sells a portion of its equity to a foreign company.
(iii) A foreign business sells a portion of its equity to an Indian company.
5. What are the motivations behind forming a joint venture?
Joint ventures are formed for a variety of reasons, which can be divided into three categories:
1. Internal Matters:
i. Capitalize on the company's assets
ii. Cost and risk distribution
iii. Improving financial resource access
iv. Scale economies and size advantages
v. Customers and access to new technology
vi. Access to cutting-edge management techniques
2. Competitive Objectives:
i. Having an impact on the industry's structural evolution
ii. Getting ahead of the competition
iii. A defensive reaction to the blurring of industrial lines
iv. Establishment of more competitive units
v. Time-to-market
vi. Enhanced agility
3. Strategic Objectives:
i. Synergies
ii. Technology or skill transfer
iii. Diversification
6. What is a Contractual Joint Venture(CJV)?
Contractual joint ventures are formed through a purpose agreement, in which two or more parties join together for a specific business project and sign a contract specifying the conditions under which they would collaborate. For the project, the participants do not create a new jointly owned independent legal organization. Franchise arrangements are similar to contractual joint ventures.
The following are the essential components of such a relationship:
i. Two or more parties share a common goal, such as launching a commercial initiative;
ii. Each of the two parties must contribute to the project in terms of inputs;
iii. Both parties have equal authority over the business initiative; and
iv. Rather than a transaction-to-transaction interaction, it entails a somewhat long-term partnership.
7. Where can I find questions and solutions related to Joint ventures ?
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