Joint Venture Contract Involvement in Establishment of Jointly Controlled Entities

Joint Venture Contract Involvement in Establishment of Jointly Controlled Entities

accounting-services-in-vietnam219. A jointly controlled entity is a joint venture which involves the establishment of a new entity in which each venturer has an interest. The entity operates in the same way as other enterprises, except that a contractual arrangement between the venturers establishes joint control over the economic activity of the entity.

20. A jointly controlled entity controls the assets of the joint venture, incurs liabilities and expenses and earns income. It may enter into contracts in its own name and raise finance for the purposes of the joint venture activity. Each venturer is entitled to a share of the results of the jointly controlled entity, although some jointly controlled entities also involve a sharing of the output of the joint venture.

21. A common example of a jointly controlled entity is

(a) when two domestic enterprises combine their activities in a particular line of business by transferring the relevant assets and liabilities into a jointly controlled entity.

(b) when an enterprise commences a business in a foreign country in conjunction with an agency in that country, by establishing a separate entity which is jointly controlled by the enterprise and the agency.

(c) when a foreign investor commences a business in conjunction with a domestic enterprise, by establishing a separate entity which is jointly controlled by these enterprises.

accounting-services-in-vietnam122. Many jointly controlled entities are similar in substance to those joint ventures referred to as jointly controlled operations or jointly controlled assets. For example, the venturers may transfer a jointly controlled asset, such as an oil pipeline, into a jointly controlled entity, for other reasons.

Similarly, the venturers may contribute into a jointly controlled entity assets which will be operated jointly. Some jointly controlled operations also involve the establishment of a jointly controlled entity to deal with particular aspects of the activity, for example, the design, marketing, distribution or after-sales service of the product.

23. A jointly controlled entity maintains its own accounting records in the same way as other enterprises in conformity with the appropriate prevailing law on accounting.

24. Each venturer usually contributes cash or other resources to the jointly controlled entity. These contributions are included in the accounting records of the venturer and recognised in its separate financial statements as an investment in the jointly controlled entity.