JOINT VENTURE NOTES
QUESTION: Difference between Joint Venture and Consignment?
JOINT VENTURE
Joint venture may be defined as temporary partnership between two or more persons without the use of firm’s name for a specific purpose and limited time period. In other words, two or more persons agree to undertake a particular venture and to share the profits and losses thereof in an agreed ratio. The relationship of co-venturers is governed by the partnership law of land.
Joint venture normally enters into either
- To complete a particular job
- For a pre-contracted time limit period after which they are automatically terminated.
CONSIGNMENT
Consignment is a specialized kind of transaction which involves the two parties i.e. Consignor and Consignee. In this the consignor dispatches the goods to the consignee and consignee is required to sell those goods. For this, the consignee gets a commission. Consignment is a nature of transaction that leads to the expansion of business. The legal relationship between the consignor and consignee is of the agent and the principal.
DIFFERENCE BETWEEN JOINT VENTURE AND CONSIGNMENT
| BASIS OF DIFFERENCE | JOINT VENTURE | CONSIGNMENT |
| NATURE | Joint venture is the temporary business between the two firms for a particular purpose or up to limited time period. | Consignment is the dispatch of the goods by the consignor to the consignee to be sold by the consignee. |
| PARTIES INVOLVED | The parties involved are known as Co-venturers. | The parties involved are known as Consignor and the Consignee. |
| RELATIONSHIP BETWEEN THE PARTIES | The relationship between the co-venturers is of associates and partners. | The relationship between the consignor and consignee is of principal and agent. |
| LEGISLATION | Joint venture is not governed by any special act, but being a particular partnership, some rules of partnership law are applicable. | Consignment is governed by the law of agency as given under the Indian Contract Act, 1872. |
| DURATION | Joint venture is for a specific purpose. That is why is generally for short time period. | The consignment agreement is for a long period and does not come to an end on the completion of a particular transaction. |
| SHARING OF PROFITS | Co-venturers share the profits or losses in the agreed ratio or equally in the absence of the agreement. | In consignment, all the profit is of consignor. |
| CONSIDERATION | The profits earned on the venture is the consideration for the risk undertaken by the co-venturer. | The consignee gets the commission as consideration for the goods sold by him on the behalf of the consignor. |
| OWNERSHIP OF GOODS | The co-venturers are the joint owners of the goods and property of the business. | The consignor is the owner of the goods, only the possession is transferred to the consignee. |
| POWERS/ AUTHORITY | All the co-venturers have equal rights or powers. | The consignee has not right in regard to the goods. |
| SCOPE | The scope of joint venture is wider. It consists of buying and selling of goods, underwriting of shares and debentures. | The scope of consignment is narrow. It is concerned with the sale of goods only. |
| CONTRIBUTION OF FINANCE | The finances are provided by all the co-venturers in case of a joint venture. | In case of consignment business, consignor is the main provider of finance. |
| MANAGEMENT | In joint venture, each co-venturer takes part in the management of the business. | In consignment, only consignor is responsible of managing the whole things. |
| LOSS OF GOODS | Co-venturers are equally responsible for loss of goods. | The consignor is responsible for the normal and abnormal loss of the goods. |
| METHODS OF ACCOUNTING | There are four methods of keeping accounts i.e. separate set of books are maintained, joint venture records maintained by all co-venturers or records maintained by one of the co-venturer or memorandum method. | The methods of accounts followed are: Cost price method Invoice Price method Memorandum Method. |
| ACCOUNT SALES | No ‘Account sales / is sent by the one co-venturer to another co-venturer. | An ‘Account Sales’ is prepred and submitted by the consignee to his consignor. |
| SUBJECT MATTER OF DEALING | Co-venturers can deal in both movable and immovable property. | Only movable property is the subject matter of the consignment. |
| TREATMENT OF CLOSING STOCK | The unsold stock belongs to all the co-venturers. | The unsold stock belongs to consignor only. |
| ACCOUNTS MAINTAINED | The accounts maintained are: Joint Venture A/c Co-Venturer Personal A/c | The accounts maintained are: Consignor’s A/c Consignee’s A/c Consignment A/c Stock Reserve A/c Commission A/c Stock sent on Consignment A/c |