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.
The image below explains a joint venture simply-
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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.
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.
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 maintaining.
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.
1. List the different types of Joint Venture.
1. List the different types of Joint Venture.
Ans. 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?
Ans. 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.