Last Updated on December 19, 2022 by Anda Malescu
In today’s business environment, it is popular among business owners and entrepreneurs to form a consortium or a joint venture, but it is important to understand that both are used differently across borders, in the United States versus Europe, and there are differences between consortium and joint ventures. Companies often collaborate and partner up with other companies for various projects, and in doing so they form consortiums or joint ventures.
Generally, a consortium or a joint venture is a strategic business association, combination or group of two or more entities or individuals formed to undertake an enterprise together. Both a consortium or joint venture can be used in any type of business transaction, including international business transactions and for any type of private or public projects. The intention when entering into a consortium or joint venture is to combine the individual resources and strengths of the parties involved to ensure the success of the new business venture. A consortium or joint venture is typically formed by contract – Consortium Agreement or Joint Venture Agreement, respectively.
However, there are differences between consortium and joint ventures
A consortium is an association of two or more individuals, companies, organizations or governments (or any combination thereof) with the objective of participating in a common activity or pooling their resources for achieving a common goal. Companies in a consortium co-operate with one another, and share resources as needed. Within the consortium, each member is responsible to the group only in respect to the obligations set out in the Consortium Agreement, but aside from this each member of the consortium retains its separate legal status and remains independent. A consortium is not a merger and each participant carries on its normal business operation without any interference with another member’s business. A consortium’s control over each member is limited to the rights and obligations delineated in the Consortium Agreement.
In a joint venture however, two or more parties generally share ownership in the venture, along with risks, profits, losses and governance. A joint venture is an association of two or more individuals or legal entities to carry out a common business enterprise for profit. Typically, a joint venture involves contribution of money, knowledge, effort or know-how by the parties in exchange for ownership in the new business venture, management and control rights, and rights to participate in the profits of the business.
As seen above, the differences between consortium and joint ventures are unnoticeable and often times they are interchangeably used. However, the major differences between consortium and joint ventures are as follows:
- Joint ventures may be incorporated as a legal entity at the election of the parties
Consortium is not incorporated as a legal entity and is only formed by contract
- The joint venture exercises management control when incorporated, otherwise it does not have management control of its affairs
Management control rests with the Consortium members
- The Joint venture itself may acquire, own, dispose, of its assets in its own name when organized as a legal entity; If not the joint venture is not incorporated, it may not own assets in its own name
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Generally, the assets are held by the consortium member or as specified in the Consortium Agreement
In the United States and across Europe, there are differences between consortium and joint ventures. In the United States, consortiums are often used in the non-profit sector, especially among educational institutions, and include for example the Five College Consortium in Massachusetts, the Quaker Consortium, the Claremont Colleges and the Big Ten Academic Alliance. On the other hand, consortiums are rarely used in the for-profit sectors, but joint venture are extremely popular for business owners and entrepreneurs who want to partner up and collaborate on a project or business venture.
In the European Union however, consortiums are widely used and are prevalent among both for-profit and non-profit sectors. Consortiums are used especially in relation to the European Union institutions and often European law requires a consortium of at least three partners from different countries to apply for European funding for a project. We successfully planned and prepared consortium agreements for projects funded by the European Bank for Reconstruction and Development (EBRD).
We successfully plan and prepare Joint Ventures and Consortium Agreements, including for parties from different countries.
Contact us or schedule a consultation with your corporate lawyers in Miami, Florida USA to help you plan and execute a Joint Venture or a Consortium Agreement.
Malescu Law P.A. – Business Lawyers
