Successful businesses are usually the result of a team effort. Working together, entities with various sets of resources can result in productive businesses. A manufacturer, for example, could not sell its products without the assistance of wholesalers, distributors, and retailers. As a result, businesses look for ways to broaden their reach through various collaborative arrangements. 

This article explores the significance and distinctions between two types of such arrangements: joint venture and consignment. We will start by seeing what is a Joint venture and what is a consignment then move forward with the differences. 

What is a Joint Venture- 

A joint venture is a business structure in which two or more entities collaborate to achieve a common commercial goal. All joint venture parties pool their resources to carry out the specific work and are jointly liable for all risks and rewards involved with the task. Each individual partner who enters into a joint venture agreement is referred to as a co-venturer.

A joint venture is typically formed by forming a new unique entity, which might be a company, a partnership firm, or an association of individuals (AOP), among other things. Each co-particular venturer’s identity is preserved.

A legal document known as a joint venture agreement serves as the foundation for carrying out a joint venture. All of the co-venturers sign a joint venture agreement. The agreement details the joint venture’s scope, timeframes, profit-sharing, and pooled resources, among other things.

The goal of forming a joint venture is to benefit from the combined resources or abilities of the co-venturers or to gain the economies of scale of a larger joint enterprise. A joint venture is often not permanent because it is founded for a specific purpose or project. It retains its identity until the completion of the appointed work or the completion of the specific project for which it was founded. However, some joint ventures that are founded to fulfil continuous work may last for an extended length of time.

What is a Consignment:

A consignment is a commercial agreement in which one entity (consignor) sells its goods to another entity (consignee) in exchange for a commission paid by the consignor. 

The primary goal of a consignment contract is to allow the owner/manufacturer of goods to expand his distribution network in order to increase sales. 

A consignment arrangement involves two parties: a consignor and a consignee.

Consignor:  Typically, the consignor is the manufacturer or bulk trader of the products. 

Consignee: This is the entity that receives items from the consignor and agrees to sell them on the consignor’s behalf. The consignee receives custody of the items rather than purchasing them from the consignor. The consignee is reimbursed with an agreed-upon commission on overall sales.

The difference between a joint venture and a consignment 

The following are the eleven significant differences between a joint venture and a consignment: 

1. Meaning 

When two or more entities collaborate and pool resources to carry out a joint business, a joint venture is formed. 

A consignment is a business agreement in which the consignor provides products to the consignee, who sells them ahead of time in exchange for a commission on sales.

2. The number of participants 

A joint venture can have any number of participating entities, i.e. two or more. 

A consignment arrangement typically involves two parties: a consignor and a consignee. 

3. The nature of the relationship between entities 

The entities involved in a joint venture are co-venturers and share profits. 

A principal-agent relationship exists between the consignor and the consignee. 

4. Establishment of a reflective construct 

A joint venture usually leads to the formation of a new, separate entity in which the participants become co-venturers. 

A consignment transaction does not create a new entity; the consignor and consignee operate as such in their respective capacities.

5. Function 

A joint venture is formed to pool collective resources in order to conduct a joint enterprise. 

There is no cooperative business done in a consignment; its objective is to enhance product sales for the consignor and generate a commission for the consignee. 

6. Scope 

A joint venture can be formed to perform any type of business. It could be about commodities, services, or a combination of the two. As a result, its scope is broad. 

A consignment arrangement has a limited scope because it is limited to the selling of commodities.

7. Permanence 

A joint venture is often formed to accomplish a certain purpose or goal. When the assignment is finished, it is usually liquidated. 

A consignment arrangement is a longer-term relationship between a consignor and a consignee for the selling of goods.

8. Accountancy 

Joint venture accounting is done in the new entity’s accounts separately. There are additional accounting standards and procedures that outline how these accounts must be integrated into the co-venturers books. 

Consignment transactions are recorded separately in the books of both the consignor and the consignee. 

9. Profit distribution/compensation 

A joint venture’s co-venturers normally share the joint venture’s profits in a predetermined ratio. 

Profits are not split between consignor and consignee. The consignee, on the other hand, receives a percentage commission on the sales he generates.

10. Risk-sharing 

In a joint venture, the co-venturers share the business’s risks (based on a profit/loss sharing ratio). 

The consignor, as the owner of the goods, takes all associated risks in a consignment transaction. 

11. Observances 

A joint venture arrangement must adhere to all legal requirements applicable to the kind of entity – whether a corporation or a partnership. 

A consignment arrangement is subject to fewer regulations than typical business contracts. 

Conclusion:

Joint venture versus consignment: The shared feature of the joint venture and the consignment is that they are both collaborative arrangements aiming at commercial expansion. While consignment contracts are typically used for goods-related transactions, joint ventures can be found in a variety of business kinds.

outsourced bookkeeping services, bookkeeping outsourcing services, outsource bookkeeping services, bookkeeping services in India, online bookkeeping services in India, accounts services, accountant services, accounting bookkeeping service