Joint venture
Factual definition
A joint venture is a business arrangement undertaken together by two or more parties. Ownership percentages alone do not establish joint control; the agreement and decision rights matter, and accounting classifications have specific requirements.
Equal ownership and agreed joint control
Hypothetical: two manufacturers each own 50% of a factory venture and contractually require both parties’ consent for decisions about its relevant activities. Their agreement separately defines output allocation.
The equal ownership split alone would not establish those control or output rights.
Source: IFRS11: Joint Arrangements.
Trace consent for a production decision
Hypothetical continuation. Assume the factory agreement identifies its production budget as a relevant activity and requires both owners to approve it.
One owner wants to add a production line, but the other rejects the proposed budget. Under those assumed decision rights, the first owner cannot approve that budget alone merely because it supplies the management team.
Trace who must consent to the decisions that significantly affect returns. IFRS 11 makes those contractual rights central to joint control; this single decision does not establish every aspect of the arrangement’s accounting classification.
Ownership, control and output need separate answers
In the factory venture above, suppose each owner contributes US$5 million but one owner is entitled to buy 70% of output and the other 30% under a separate supply agreement. Equal equity contributions do not by themselves require equal product allocations.
If both must approve the production budget and cannot agree, the operating plan may stall even though each wants the venture to succeed. The agreement needs a way to handle that deadlock, such as escalation or another negotiated process.
A unilateral tie-breaker over relevant activities can change the control analysis, so it should not be added casually while assuming the same joint-control conclusion. The commercial problem and the accounting classification have to be considered together.
A supplier contract can coordinate two independent businesses without creating a jointly controlled enterprise. A joint venture brings agreed shared participation into the arrangement, but its ownership, governance and accounting consequences still depend on the actual rights.
Where Joint venture fits
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