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Monday, April 30, 2012

Joint Venture Agreement



Joint Venture (JV)

A joint venture is a business deal in which two or more people combine their expertise and share the risk, profits and liabilities. An example of a joint venture is a school district and a city park commission coming together to develop a summer recreation program.

joint venture legal definition

An unincorporated business venture with two or more participants who share the financial risk and gain.

Joint Venture investment & finance definition

An agreement between two or more companies to cooperate on a specific initiative. The joint venture may involve marketing a product, offering a service, or expanding into a new geographical territory. Often, companies undertake joint ventures with companies in other countries as a way to expand into new markets. While the local company will have the business relationships and current business operations, the foreign company may bring a brand name and managerial skills.

joint venture business definition



A business undertaken by two or more individuals or companies in an effort to share risk and use differences in expertise. For example, oil companies often enter into joint ventures on particularly expensive projects carrying a high risk of failure.


An association of two or more individuals or companies engaged in a solitary business enterprise for profit without actual partnership or incorporation; also called a joint adventure.

A joint venture is a contractual business undertaking between two or more parties. It is similar to a business partnership, with one key difference: a partnership generally involves an ongoing, long-term business relationship, whereas a joint venture is based on a single business transaction. Individuals or companies choose to enter joint ventures in order to share strengths, minimize risks, and increase competitive advantages in the marketplace. Joint ventures can be distinct business units (a new business entity may be created for the joint venture) or collaborations between businesses. In a collaboration, for example, a high-technology firm may contract with a manufacturer to bring its idea for a product to market; the former provides the know-how, the latter the means.

All joint ventures are initiated by the parties' entering a contract or an agreement that specifies their mutual responsibilities and goals. The contract is crucial for avoiding trouble later; the parties must be specific about the intent of their joint venture as well as aware of its limitations. All joint ventures also involve certain rights and duties. The parties have a mutual right to control the enterprise, a right to share in the profits, and a duty to share in any losses incurred. Each joint venturer has a fiduciary responsibility, owes a standard of care to the other members, and has the duty to act in Good Faith in matters that concern the common interest or the enterprise. A fiduciary responsibility is a duty to act for someone else's benefit while subordinating one's personal interests to those of the other person. A joint venture can terminate at a time specified in the contract, upon the accomplishment of its purpose, upon the death of an active member, or if a court decides that serious disagreements between the members make its continuation impractical.
Joint ventures have existed for centuries. In the United States, their use began with the railroads in the late 1800s. Throughout the middle part of the twentieth century they were common in the manufacturing sector. By the late 1980s, joint ventures increasingly appeared in the service industries as businesses looked for new, competitive strategies. This expansion of joint ventures was particularly interesting to regulators and lawmakers.
The chief concern with joint ventures is that they can restrict competition, especially when they are formed by businesses that are otherwise competitors or potential competitors. Another concern is that joint ventures can reduce the entry of others into a given market. Regulators in the Justice Department and the Federal Trade Commission routinely evaluate joint ventures for violations of Antitrust Law; in addition, injured private parties may bring antitrust suits.


Properly chosen and implemented, joint ventures can be a great way for your small business to get in on opportunities (and profits) that otherwise you would miss out on. I like to think of them as diamonds on the beach. You see the diamonds lying on the sand but try as you might, you can't pick them up – until you team with someone else who knows the trick of scooping them up.
By teaming up with other people or businesses in a joint venture, you can:
  • extend your marketing reach
  • access needed information and resources
  • build credibility with a particular target market
  • access new markets that would be inaccessible without the partner
For instance, suppose you and five other potters form a joint venture to hold a Potter's Fair on a particular date. Because you pool your resources, you're able to do much more advertising and promotion than you would be able to go alone, bringing out crowds of customers for your joint event.

Joint Venture Definition
A joint venture is a strategic alliance where two or more people or companies agree to contribute goods, services and/or capital to a common commercial enterprise.
Sounds like a partnership, doesn’t it? But legally, joint ventures and partnerships are not the same thing.

Joint Ventures versus Partnerships
The main difference between a joint venture and a partnership is that the members of a joint venture have teamed together for a particular purpose or project, while the members of a partnership have joined together to run "a business in common".
Each member of the joint venture retains ownership of his or her property.
And each member of the joint venture shares only the expenses of the particular project or venture.
Tax-wise, there are also differences between joint ventures and partnerships. As a member of a joint venture, you will receive a share of the profits which will be taxed according to whatever business structure you have set up. So, for instance, if you operate a sole proprietorship, your joint venture profits will be taxed just as any other business income would.
Joint ventures enjoy tax advantages over partnerships, too. Capital Cost Allowance (CCA) is treated differently. While those in partnerships have to claim CCA according to partnership rules, those in joint ventures can choose to use as much or little of their CCA claim as they like.
And joint ventures don’t have to file information returns, unlike partnerships.
How to Get a Joint Venture Started
  • The first step to creating a joint venture is to set your goals and decide what you want your joint venture to do. If you need help getting started with this, look at the four things a joint venture can do that I've listed at the beginning of this article, pick one, and then develop a goal that is as specific as possible.
  • Then it's time to look for the like-minded - people or firms that might be interested in the same goal or goals you want to pursue. Look in the business groups you already belong to, both in person and virtually. Use your social networking connections. Study business listings in the phone book or on Web sites to find those that might share your goals.
  • And be open to being asked. Once you start talking to other people about what you might do together, a joint venture idea you haven’t even thought of might pop up - one with a lot of potential.
  • Once you've found the people to share in a joint venture, be sure to have it all put into writing in a joint venture agreement. I strongly recommend hiring a legal professional to do this.
So instead of dismissing an opportunity as out of your reach, start thinking instead about how you could participate with a joint venture. Properly planned and executed, joint ventures can help your small business go where it's never been able to go before



 This section applies to accounting for joint ventures in consolidated financial statements and in the financial statements of an investor that is not a parent but that has a venturer’s interest in one or more joint ventures. Paragraph 9.26 establishes the requirements for accounting for a venturer’s interest in a joint venture in separate financial statements.

Joint ventures defined

  Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).

 A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint ventures can take the form of jointly controlled operations, jointl controlled assets, or jointly controlled entities.


Jointly controlled operations

The operation of some joint ventures involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture activities may be carried out by the venturer’s employees alongside the venturer’s similar activities. The joint venture agreement usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers.

In respect of its interests in jointly controlled operations, a venturer shall recognise in its financial statements:
  1. the assets that it controls and the liabilities that it incurs, and
  2. the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture.
Jointly controlled assets


Some joint ventures involve the joint control, and often the joint ownership, by the venturers of one or more assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture.

In respect of its interest in a jointly controlled asset, a venturer shall recognise in its financial statements:
  1. its share of the jointly controlled assets, classified according to the nature of the assets;
  2. any liabilities that it has incurred;
  3. its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;
  4. any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and
  5. any expenses that it has incurred in respect of its interest in the joint  venture.
Jointly controlled entities

A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest.  The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

Measurement—accounting policy election

A venturer shall account for all of its interests in jointly controlled entities using one of the following

Transactions between a venturer and a joint venture

When a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction shall reflect the substance of the transaction. While the assets are retained by the joint venture, and provided the venturer has transferred the significant risks and rewards of ownership, the venturer shall recognise only that portion of the gain or loss that is attributable to the interests of the other venturers. The venturer shall recognise the full amount of any loss when the contribution or sale provides evidence of an impairment loss.

When a venturer purchases assets from a joint venture, the venturer shall not recognise its share of the profits of the joint venture from the transaction until it resells the assets to an independent party. A venturer shall recognise its share of the losses resulting from these transactions in the same way as profits except that losses shall be recognised immediately when they represent an impairment loss.


Investments in Joint Ventures

This section applies to accounting for joint ventures in consolidated financial statements and in the financial statements of an investor that is not a parent but that has a venturer’s interest in one or more joint ventures. Paragraph 9.26 establishes the requirements for accounting for a venturer’s interest in a joint venture in separate financial statements.


Joint ventures defined

Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers).

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint ventures can take the form of jointly controlled operations, jointl controlled assets, or jointly controlled entities


Jointly controlled operations

The operation of some joint ventures involves the use of the assets and other resources of the venturers rather than the establishment of a corporation, partnership or other entity, or a financial structure that is separate from the venturers themselves. Each venturer uses its own property, plant and equipment and carries its own inventories. It also incurs its own expenses and liabilities and raises its own finance, which represent its own obligations. The joint venture activities may be carried out by the venturer’s employees alongside the venturer’s similar activities. The joint venture agreement usually provides a means by which the revenue from the sale of the joint product and any expenses incurred in common are shared among the venturers.

In respect of its interests in jointly controlled operations, a venturer shall recognise in its financial statements:
  1. the assets that it controls and the liabilities that it incurs, and
  2. the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the joint venture.

Jointly controlled assets

Some joint ventures involve the joint control, and often the joint ownership, by the venturers of one or more assets contributed to, or acquired for the purpose of, the joint venture and dedicated to the purposes of the joint venture

In respect of its interest in a jointly controlled asset, a venturer shall recognise in its financial statements:
  1. its share of the jointly controlled assets, classified according to the nature of the assets;
  2. any liabilities that it has incurred;
  3. its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;
  4. any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and
  5. any expenses that it has incurred in respect of its interest in the joint  venture.

Jointly controlled entities

A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest.  The entity operates in the same way as other entities, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.


Measurement—accounting policy election

A venturer shall account for all of its interests in jointly controlled entities using one of the following


Equity method

A venturer shall measure its investments in jointly controlled entities by the equity method using the procedures in paragraph 14.8 (substituting ‘joint control’ where that paragraph refers to ‘significant influence’).

Transactions between a venturer and a joint venture

When a venturer contributes or sells assets to a joint venture, recognition of any portion of a gain or loss from the transaction shall reflect the substance of the transaction. While the assets are retained by the joint venture, and provided the venturer has transferred the significant risks and rewards of ownership, the venturer shall recognise only that portion of the gain or loss that is attributable to the interests of the other venturers. The venturer shall recognise the full amount of any loss when the contribution or sale provides evidence of an impairment loss.

When a venturer purchases assets from a joint venture, the venturer shall not recognise its share of the profits of the joint venture from the transaction until it resells the assets to an independent party. A venturer shall recognise its share of the losses resulting from these transactions in the same way as profits except that losses shall be recognised immediately when they represent an impairment loss.

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