Joint Venture

Companies form joint ventures to combine resources, share risks and costs, enter new markets or access each other's technology or expertise. For example, a foreign company might form a joint venture with a local partner to operate in a country where it lacks experience or where rules require local ownership.

The key feature is joint control: no single party can make important decisions alone. This distinguishes a joint venture from a subsidiary, which one parent controls, and from an associate, over which the investor has influence but not control.

In accounting, investments in joint ventures are generally recorded using the equity method, in which the investor recognises its share of the venture's profits or losses rather than consolidating its assets and liabilities line by line. Under IFRS, arrangements in which the parties have direct rights to specific assets and obligations for specific liabilities are classed differently, as joint operations.

For example, two energy companies might each own 50% of a joint venture that builds and runs a wind farm, sharing its profits equally.

Joint ventures can succeed when partners have complementary strengths, but they can also suffer from disagreements over strategy and control.