What is a joint venture?
A joint venture (JV) lets businesses combine strengths, such as capital, technology, local knowledge or distribution, without merging. It may be a separate company jointly owned by the partners, or a contractual arrangement.
Why businesses form joint ventures
- Enter a new country or market with a local partner
- Share the cost and risk of large projects
- Access technology, licences or expertise
- Bid for contracts neither party could win alone
Accounting treatment
Under IFRS 11 Joint Arrangements, arrangements with joint control are classed as:
- Joint ventures: parties have rights to the net assets. Each partner uses the equity method, recording its share of the JV's profit or loss in one line.
- Joint operations: parties have rights to specific assets and obligations for liabilities. Each partner records its share of those directly.
Example
Two construction firms each own 50% of a JV company set up to build a bridge. The JV earns $2 million profit. Each partner records $1 million as its share of profit from the joint venture and increases its investment by the same amount.
Key considerations
- A clear JV agreement on contributions, control, profit sharing and exit
- Governance and dispute resolution
- Tax treatment in each partner's jurisdiction