Introduction
In order to avoid the risk and unlimited liability involved in sole-trader and partnership business and with an object to earn profit from a temporary business having a specific period of life, the concept of joint venture has emerged. This business is well suited for businesses which are to be completed within a shorter period of time
Example: - purchase and sale of a specific goods,
- Seasonal business
- building construction
- Work of contract
- underwriting of shares or debenture
Meaning
when two or more than two persons in order to earn profit forms a temporary partnership and carries on any specific business having a shorter period of time then such type of partnership is called as joint venture.
Joint venture is result of contract between two or more parties to undertake a small commercial venture and to share the gains (or loss) thereof in agreed proportions
Ideal definition :
when two or more than two persons , firms, companies or any other institutions makes an agreement to carry a temporary business having a specific objective with a motive to earn profit on a combined risk and share the profit and loss in pre-determined ratio then it is called as joint venture.
Features /Characteristics of Joint Venture
1.Temporary partnership : it is pre-determined and it is of temporary nature. On the objective being achieved the joint venture is closed.
2. Specific Objective : The object of running the joint venture is certain.For example , purchase or sale of goods, to work on contract , construction of building, underwriting of shares and debentures etc.
3. Earning of profit : Object of joint venture business is to earn profit
4. No name of the firm
5. Joint risk : the risk is borne by the co-venture jointly
6. Agreement:joint venture business is established through an agreement between two or more than two persons
7.Distribution of profit : The profit earned in the joint venture business is shared in the pre-determined ratio by all the co-venturer
8. Time of calculation of profit and loss : it is calculated on completion of joint venture or if it continues more than one year it is calculated on annul basis.
9.Basis of accounting : The money measurement concept is considered,hence all cash transactions are recorded.
10.Number of persons : Minimum persons required for joint venture is two but there is no limit for maximum persons.
11.Status of minor : An agreement with minor is void ( not legally binding or enforceable ).
Features /Characteristics of Joint Venture
1.Temporary partnership : it is pre-determined and it is of temporary nature. On the objective being achieved the joint venture is closed.
2. Specific Objective : The object of running the joint venture is certain.For example , purchase or sale of goods, to work on contract , construction of building, underwriting of shares and debentures etc.
3. Earning of profit : Object of joint venture business is to earn profit
4. No name of the firm
5. Joint risk : the risk is borne by the co-venture jointly
6. Agreement:joint venture business is established through an agreement between two or more than two persons
7.Distribution of profit : The profit earned in the joint venture business is shared in the pre-determined ratio by all the co-venturer
8. Time of calculation of profit and loss : it is calculated on completion of joint venture or if it continues more than one year it is calculated on annul basis.
9.Basis of accounting : The money measurement concept is considered,hence all cash transactions are recorded.
10.Number of persons : Minimum persons required for joint venture is two but there is no limit for maximum persons.
11.Status of minor : An agreement with minor is void ( not legally binding or enforceable ).
Advantages of Joint venture :
joint venture is best suitable for those type of business which automatically comes to an end on the expiry of time period or when its objective is achieved.The following advantages are derived by running a joint venture :
1.Availability of adequate Capital : There is no limit for maximum numbers hence adequate capital can be raised for a short term business
2, Division of profit : the business risk is jointly shared among all the co-venrturers. This helps development of business.
3.No restriction of Law : There is no specific law to commence or close the joint venture. Hence this business is easily commenced.However to resolve disputes of co-venturer the provisions of indian Partnership Act.1932 is taken into consideration and to resolve disputes among business parties indian contract act 1872 and sale of goods act 1930 is taken into consideration.
4.Disputeless business : as business come to an end in shorter period of time,there is a least chances of disputes being arising among co-venturer.
Difference Between Joint Venture and Consignment
Basis of Difference
|
Joint venture
|
consignment
|
1. Meaning
|
When two are more than two persons carries a temporary
business on combined risk, then such a business is called as joint venture.
|
when the principal on
his own risk and ownership transfer goods for the purpose of sale is termed
as consignment
|
2.ownership
|
All the co-venturers
are owners of the goods of joint venture business
|
The principal or
consignor is the owner of the goods
|
3. parties
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The parties involved
in joint venture are all co-venturers
|
Only 2 parties – consignor and consignee
|
4.Scope
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Joint venture can be conducted for any legal
business
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Only moveable goods are considered.
|
5.Risk and
Liability
|
The risk and liability of joint venture business
is borne by all the co-venturers
|
It is borne by consignor himself.
|
6. Mutual
Relationship
|
There is the same relationship among co-venurers as
like partnership
|
In consignment, the consignor is the principal
and consignee is considered as agent.
|
7. Arrangement
of funds
|
The responsibility
for arrangement of funds is on all the co-venturers
|
The consignor makes arrangement for goods on
consignment.
|
8. Distribution of
Profit
|
Profit is distributed
on pre-determined ratio above agreed
by mutual agreement
|
The profit on consignment
is received only by the consignor.
|
9. Payment of
commission
|
Generally commission
is not paid to co-venturers
|
Commission is paid based on sales made by
consignee
|
10. Number
of persons
|
Minimum is 2 and no restriction as regard to maximum numbers
|
Only two persons a consignor and consignee
|
11. Dissolution
|
Dissolved itself on the fulfillment of objectives
|
It does not come to an end after completion of one consignment
|
12. Governing
Act
|
Indian partnership Act, 932.
|
Indian contract act,1872
|
13. Accounting
treatment
|
There are 4 methods of accounting and any one method can be used
|
There is only one method of accounting
|
Difference between Joint venture and partnership
Basis of difference
|
Joint venture
|
Partnership
|
1. Meaning
|
When two are more than two persons carries a temporary business
on combined risk, and then such a business is called as joint venture.
|
Partnership is a relation between persons who have agreed
to share the profit of the business managed by all of them or by any one of
them on behalf of others.
|
10. Number of persons
|
Minimum is 2 and no restriction
as regard to maximum numbers
|
Minimum two partners and in
general business the maximum partners are 20 and in banking business 10.
|
3. Name of the firm
|
There is no name of the firm
|
There is a name of the firm
|
4.stability
|
It is a temporary partnership which come to end on the
completion of the specific purpose w
|
It is a permanent partnership and continues to exist till
the business continues.
|
5.Registration
|
Its registration is not compulsory to file a case against
external parties.
|
The registration is compulsory for filing a case against
third parties.
|
6. Minor
|
An agreement with a minor is void and illegal. Hence minor
cannot be included in joint venture business
|
A minor can be included in a partnership for profit of the
firm but not as a partner.
|
8. Distribution of Profit
|
The profit of joint venture is distributed among the
partners after the completion of the business.
|
Profit is distributed among the partners at the end of the
financial year.
|
8. Name of the partners
|
The co-partners in
a joint venture are known as co-venture
|
The co-partners in
a partnership business are called partners
|
9. Accounting Treatment
|
Any one method can be used among the four methods prescribed
|
There is only one method for accounting.
|
10.liability
|
The co-venturer can limit their liability by mutual
agreement
|
The liability of a partnership business is unlimited.
|
Accounting Treatment
The method of accounting for determining the profit and loss and for the payment of final account in case of joint venture depends upon the mutual agreement, nature of business,period of joint venture and convenience. As per need and convenience any one method from the following may be applied :
The popular methods of preparing accounts of joint venture are as follows:-
1. Accounts kept by one party.
2. Accounts kept by all parties.
3. Accounts kept by separate books.
4. Accounts kept by Memorandum Method.
These methods of accounting records of joint venture are described briefly as follows:-
Accounts kept by one party
Under this method account are recorded by one co-adventurers and he is responsible for the entire accounting recording. He is given money by all co-adventures and he does the work for the joint venture for which he may be given commission if all are agree. In the end, he will prepare Joint Venture Account and will calculate profit or loss on joint venture.
Accounts kept by all parties
Under this method all the co-adventurers maintain the accounts in their respective books relating to Joint Venture. Each venture will convey his transaction of Joint Venture to other ventures. By this information every venture will prepare its own Joint Venture Account and also the personal accounts of other ventures.
Accounts kept by separate books
Under this method separate books are kept for the joint venture through opening of a separate bank account. Contributions by the co=adventurers are deposited in this account; as far as possible payments on account of the joint venture are made out of this bank account. At the close the profit or loss is transferred to the accounts of the co-adventurers and the amounts due to them are then paid out of the joint bank account which is then closed.
Accounts kept by memorandum method
Under this method the profit or loss on joint venture is known with the help of Memorandum Joint Venture Account. Hence only one account is opened named as “Joint Venture with…..Account”
or
