What is the difference between jv and consortium

Develop and improve products. List of Partners vendors. A joint venture JV is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a JV, each of the participants is responsible for profits , losses, and costs associated with it.

However, the venture is its own entity, separate from the participants' other business interests. Joint ventures, although they are a partnership in the colloquial sense of the word, can be formed between any legal structure. Corporations, partnerships, limited liability companies LLCs , and other business entities can all be used to form a JV. Despite the fact that the purpose of JVs is typically for production or for research, they can also be formed for a continuing purpose.

Joint ventures can combine large and smaller companies to take on one or several big, or little, projects and deals. There are four main reasons why companies form joint ventures:. A joint venture can take advantage of the combined resources of both companies to achieve the goal of the venture. One company might have a well-established manufacturing process, while the other company might have superior distribution channels.

By using economies of scale , both companies in the JV can leverage their production at a lower per-unit cost than they would separately.

This is particularly appropriate with technology advances that are costly to implement. Other cost savings as a result of a JV can include sharing advertising or labor costs. Two companies or parties forming a joint venture might each have unique backgrounds, skillsets, and expertise. When combined through a JV, each company can benefit from the other's expertise and talent within their company.

Regardless of the legal structure used for the JV, the most important document will be the JV agreement that sets out all of the partners' rights and obligations. The objectives of the JV, the initial contributions of the partners, the day-to-day operations, and the right to the profits, and the responsibility for losses of the JV are all set out in this document.

It is important to draft it with care, to avoid litigation down the road. Another common use of JVs is to partner up with a local business to enter a foreign market. A company that wants to expand its distribution network to new countries can usefully enter into a JV agreement to supply products to a local business, thus benefiting from an already existing distribution network.

Some countries also have restrictions on foreigners entering their market, making a JV with a local entity almost the only way to do business in the country. When forming a JV, the most common thing the two parties can do is to set up a new entity. But because the JV itself isn't recognized by the Internal Revenue Service IRS , the business form between the two parties helps determine how taxes are paid. If the JV is a separate entity, it will pay taxes as any other business or corporation does.

Parent company guarantees may clarify this. Without these, a JV set-up could be far more risky for the employer in case the JV entity becomes insolvent. If one party is in default, the other consortium or JV partner s has to find a replacement entity. Or otherwise perform the whole of the works. At least on this point the situation is the same for both solutions!

Yet, the way contractors operate is completely different for both solutions. It is important for both employers and contractors to understand these differences. For employers, this improves understanding the behavior of contractors. For the contracting entities, each and every aspect of their relationship depends on the chosen solutions: price, margin, scope, liquidated damages, invoicing etc.

We encourage you to have a look at the rest of our blog, containing interesting articles on subjects like negotiation , contract risk management , FIDIC , dispute resolution etc. Its objective is to stimulate reflection, learning, convergence to balanced contracts and positive dispute resolution.

You can also connect to our LinkedIn page. Engagement with the readers is what keeps us going. Jan Bouckaert has 25 years of worldwide experience in negotiation of complex construction, renewable energy, power and infrastructure projects. He is also specialized in contract management, risk management and alternative dispute resolution. He speaks fluently English, French, Portuguese and Dutch. Jan is the founder of AfiTaC, a company giving advice on international tenders and contracts.

This article seem to assume the JV is incorporated. Unincorporated JV also exist, which are more like consortiums. Thank you for your comment, Jeremie Averous. Indeed, it assumes the JV is incorporated. We are talking here about the two most distinct choices. Maybe in a next article, we can go through all the intermediate versions: unincorporated JV, internal consortium only one party signing the main contract etc. If you want to contribute, that would be great! Your email address will not be published.

I guess that would be a bit boring! Read more…. Time is one of the most Read more…. Your Practice. Popular Courses. Business Essentials Guide to Mergers and Acquisitions. Business Business Essentials. What Is a Consortium? Key Takeaways A consortium is a group of entities that collaborate to achieve a common objective. Consortiums are common among educational institutions that pool resources so that students can benefit from a broader range of assets.

Fast Fact In contrast to a joint venture, consortiums act independently in their day-to-day operations. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

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A joint venture JV is a business arrangement where two or more parties pool their resources for the purpose of accomplishing a specific task. Procurement Regulations. Free Keyword search. Search all tender notices for FREE! No subscription or registration required!

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