[Commerce Class Notes] on Joint Ventures Pdf for Exam

Non-corporate entity is an entity which is legal in nature. The entity does not go through the incorporation process all over. The shareholders possess definite responsibilities and rights, which normally the owners of other legal entities do not have. This type of entity can do the following:

• Enter into valid agreements.

• Borrow and loan money from the finance sector.

• Sue or be sued in a similar fashion.

• Own assets are present.

• Pay taxes legally.

• Hire employees for the organization.

In Detail

Non-corporation companies, like the partnerships or the sole proprietorships have no legal distinction apart from its owners. The owners of such entities do not have the equal legal protections as a corporate entity. Starting a non-corporate entity is a lot easier than starting a corporate entity, also registering a corporation comes with certain responsibilities. Also, corporations may be quite expensive to create, this too depends on the state the company is incorporated. Corporate registration also requires additional paperwork to get registered, while this non-corporate form is different from the corporate form requirement. 

Joint Ventures for Non-Corporate Entities

Joint ventures or its alliances are generally structured without the formation of jointly owned entities.  The Key Factors to Consider with JV Entities in order to decide whether to use a JV entity or a non-entity structure, the parties should properly analyse tax, accounting, licensing and other main factors. In the section below we will discuss the key tax factors which are important to be considered. The non tax issues of the concern are also worthy to consider, but moreover we will enunciate with the tax considerations with a JV entity which will be highly fundamental while choosing one’s system, they are:

• JV files its own tax returns

• The entity adopts its own accounting methods and also conducts its own tax audits

• at least one of its members gives up his control of these matters or the members risk their deadlock

Joint Venture Accounting with Separate Book

The accounting of the Joint Venture can be done in any of the following ways:

When the separate set of books are to be maintained

While, when the separate set of books are not maintained. 

Here we will discuss the situation when the separate set of books are to be maintained. The following accounts are made:

Joint bank account

Joint venture account

Co-venturers account

1. Joint Bank Account

The co-venturers in a JV open a separate bank account for the transactions of the venture. They make contributions to this account. The bank account is normally operated on a joint basis. Expenses are to be met from this Joint Bank Account. Sales or collections from the transactions are deposited back into the account.

2. Joint Venture Account

This type of account is prepared for measuring the venture profit. This account is then debited with all the venture expenses and is credited with the sales or collections. The excess balance from the credit side over the debit side shows the profit of the joint venture and vice versa. The Profit or Loss is then transferred to the co-venturer’s accounts in their respective profit-sharing ratio.

3. Co-Venturers’ Accounts

Personal accounts related with the venturers are to be maintained while keeping a record of their own contributions of cash or goods. The expenditure which is directly paid and the payments that are directly received by the co-venturers are recorded in this account in the same manner. The profit or loss as while made on the venture is transferred to this account in the agreed profit-sharing ratio. This account is also closed on termination of the venture.