Introduction
United Launch Alliance, the rocket company that launches many US national security satellites, is owned equally by Lockheed Martin and Boeing. Neither consolidates it. Lockheed carries its stake as an equity method investment, the bulk of its $653 million of such investments at the end of 2025, and reports its share of the venture's earnings as one net figure within other income, net. Berkshire Hathaway's 50% stake in Berkadia, a commercial mortgage business owned jointly with Jefferies, is carried the same way, at $450 million.
Joint ventures are a common way to share the cost and risk of a large project or a new market. Because no single partner controls them, they sit between consolidation and passive investment, and their accounting can keep substantial revenue and debt out of each partner's statements.
What Makes a Joint Venture
- Joint venture
An entity owned and operated by a small group of businesses as a separate enterprise for their mutual benefit, in which the owners share control, typically by requiring their unanimous consent to significant decisions. Under US generally accepted accounting principles (US GAAP), each venturer generally accounts for its interest under the equity method.
The defining feature is joint control: by contract, the key financial and operating decisions require the consent of the parties sharing control. A 50/50 ownership split is common but not essential; a 60/40 venture in which both partners must agree on budgets and strategy is jointly controlled, while a 50/50 venture in which one partner can decide alone is not. Under US GAAP, an investor in a corporate joint venture applies the equity method described in the equity method of accounting explained, recording its share of the venture's earnings and carrying its stake as a single asset. Proportionate consolidation, recording a share of each line, is permitted only in narrow cases, such as undivided interests in oil and gas properties and some construction ventures.
Forming a Joint Venture
When partners contribute businesses or assets to a new venture, two sets of accounting follow. Each partner that gives up control of a business it contributed derecognizes it, recognizes a gain or loss, and records its new stake at fair value, under the rules for losing control covered in consolidation: when you control a subsidiary. Under Accounting Standards Update (ASU) 2023-05, a venture formed on or after January 1, 2025 records the contributed net assets at fair value, set so that they equal the fair value of its equity, with any excess of that equity value over the identifiable net assets recognized as goodwill, as Deloitte's summary of the joint venture formation standard explains. Before that standard, ventures often carried contributed assets at the partners' historical book values, which made their own statements hard to compare with an acquisition of the same assets.
What Bankers Watch in Joint Ventures
The equity method keeps a venture's debt off its partners' balance sheets, but not always off their risk. Partners frequently provide credit support: they guarantee a venture's borrowings or performance, commit to fund it, or back it through other parts of their business. Berkshire, for example, discloses that Berkadia's commercial paper borrowing capacity of up to $1.5 billion is supported by a surety policy issued by a Berkshire insurance subsidiary, with Jefferies obligated to indemnify Berkshire for half of any losses under it, as its 2025 annual report explains. Such support is disclosed with the other commitments covered in off-balance-sheet arrangements and guarantees.
Cash matters as much as earnings. A partner's share of a venture's profits is not cash until the venture distributes it, and joint venture agreements often restrict distributions until the venture's own lenders are satisfied. The distributions received line, disclosed alongside the share of earnings, shows how much of the reported income actually reaches the partner.
