Difference between consignment and joint venture

The basic difference between consignment and joint venture is the nature of the relationship between in the parties

However, there are other differences between consignment and joint venture including the parties involved, the relationship between them, profit-sharing and ownership rights.  

In the United States, a joint venture is a business arrangement between two or more parties, in which the parties agree to pool their resources for the purpose of accomplishing a new project or a new business activity. The participants in the joint venture share profits, losses and costs derived from the venture business activity but the venture remains an entity separate from the partners’ other business interests. In the case of consignment however, the relationship between the parties is that of a principal-agent.

Consignment is a trade arrangement in which the seller (consignor) sends goods to the buyer (consignee) for further resale to third parties without getting payment for the goods sent. The seller is paid only when the goods are sold. The seller retains title to the goods. The title is transferred directly to the third-party purchaser upon sale. Aside from delivering goods for resale, the seller may also deliver goods as raw materials or parts that are used in the buyer’s equipment or to produce a finished product. A consignment contract is especially frequent in sectors such as jewelry, tapestry, antique and fine arts.   

Both consignment and joint venture are useful tools to enter a new market or test a product in a new market

It allows the parties involved to access new customers and use facilities, know-how and other resources that they would otherwise not have. Further, in the United States the rules applicable to both consignment and joint ventures arise under the laws of the various states.

The main differences between consignment and joint venture are as follows:

• Nature of Relationship

Joint Venture: It is a temporary partnership between two or more parties.

Consignment: It refers to a principal (seller) sending goods to his agent (buyer) for sale to third parties.

• Parties

Joint Venture: The participants in a joint venture are called co-ventures.

Consignment: The parties to a consignment agreement are known as consignor and consignee.

• Relationship

Joint Venture: The relationship between co-ventures is like that of partners in a partnership.

Consignment: The relationship between consignor and consignee is a principal-agent relation.

• Profit Sharing

Joint Venture: Co-ventures share the profits and losses of the joint venture in their agreed proportion.

Consignment: The consignor and consignee do not share profits; the consignee receives a commission.

• All Rights

Joint Venture: The co-ventures enjoy equal rights in a joint venture.

Consignment: The consignor and consignee do not enjoy equal rights. The consignor has the rights of a principal and the consignee those of an agent.

• Governing Act

Joint Venture: The joint venture is governed either by the contract law in each U.S. state or the business organizations acts of each U.S. state.

Consignment: The relation between the consignor (seller) and the consignee (buyer) is governed by Law of Agency because it involves a principal – agent relation.

• Powers

Joint Venture: Co-ventures have unlimited powers with respect to the joint venture.

Consignment: The consignee’s powers are limited. The consignee is the agent who follows instructions from the consignor.  

• Ownership

Joint Venture: The co-ventures are the co-owners of the joint venture.

Consignment: The consignor is the owner of the business activity – the goods.

• Information Sharing

Joint Venture: The co-ventures share the required information on a regular basis.

Consignment:  The consignee prepares and shares an account of sales with the consignor detailing the business activities carried on.

• Maintenance of Accounts

Joint Venture: The co-ventures maintain the accounts as specified in the joint venture agreement.

Consignment: There is only one method of maintaining the accounts of the consignment.  

• Basis of Accounting

Joint Venture: In joint venture cash basis of accounting is applied.

Consignment: Actual basis of accounting is applicable.

• Continuity

Joint Venture: The joint venture terminates when the venture is completed.

Consignment: The consignment is continuous for as long as both the consignor and consignee agree.

Contact us or schedule a consultation with your international business attorney in Miami, Florida USA to help you plan and execute a joint venture or consignment agreement.

Malescu Law P.A. – Business Lawyers