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Partnerships and joint ventures are two types of business structures you might be considering for your business. A partnership refers to a relationship between two or more parties carrying on a business with the view to profit. In contrast, a joint venture is an agreement where two parties combine to work towards a specific goal or purpose.
While each structure has its advantages and disadvantages, the most suitable option for your business needs will depend on your unique circumstances. This article will take you through three differences between joint ventures and partnerships to help you make the best choice.
Parties Involved
A key difference between joint ventures and partnerships is the parties involved. A partnership involves two or more parties (up to 20) joining together for a combined business. The partners in a partnership might be:
- individuals;
- businesses;
- governments; or
- any combination of these.
Most partnerships will use a partnership agreement, which outlines how they will share and distribute income and losses and how the partners will manage the business.
On the other hand, a joint venture refers to two or more persons or businesses joining together for a particular project or purpose. Typically, two businesses will form a joint venture where they have complementary strengths or assets. You can then create a joint venture agreement to outline:
- the roles and responsibilities of each party;
- how you will manage the joint venture; and
- how you will share profits and liabilities.
Liabilities
Depending on the type of partnership, each partner is usually jointly and severally liable for the other partner’s debts.
On the other hand, limited partnerships typically comprise a partner whose liability is limited to their contribution to the business. In these partnerships, the general partners will be jointly and severally liable for all of the partnership debts, while the limited partners are exempt from the wrongdoings of the other partners. This is because limited partners play a passive role in the management of the partnership. You can only form limited partnerships in certain states. In contrast, incorporated limited partnerships create a separate legal entity, meaning the company itself can sue and be sued.
Joint venture agreements can be incorporated or unincorporated. In an incorporated joint venture, liability will be contained within the company, meaning the joint venture can sue and be sued. Where a joint venture is unincorporated, the joint venture is a contractual arrangement. The joint venture agreement will specify whether they will share liabilities or have separate responsibilities.
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Length of Agreement
Another key difference between a joint venture and a partnership is the length of time of the agreement. Partnerships usually last indefinitely, with the partnership only dissolving in certain circumstances. For example, a partnership might end if:
- the partnership agreement outlines a term that has since expired;
- a partner exits the partnership;
- the partners are not legally eligible to own a business;
- a court makes an order to dissolve the business; or
- one of the partners dies.
However, a joint venture agreement will usually specify a termination date. This date will either be a specific day or be contingent on a specific event. If a joint venture agreement does not specify an end to the agreement, you can terminate a joint venture at will if there is mutual consent.
Key Takeaways
There are a range of differences between a partnership and a joint venture that you should consider before choosing the business structure that is right for you. Some of the key differences include differences in:
- parties involved;
- liabilities; and
- length of the agreement.
If you need assistance choosing between a partnership and a joint venture, you should seek expert legal advice. Get in touch with LegalVision’s experienced business lawyers on 1300 544 755 or by filling out the form on this page.
Frequently Asked Questions
A partnership is a relationship between two or more parties carrying on a business with the view to profit. In a partnership, partners will distribute income and losses between themselves and share in the control and management of the business. Partnerships are relatively easy to set up and have minimal reporting requirements compared to other business structures.
A joint venture arrangement is an agreement where two parties combine to work towards a specific goal or purpose. The venture is its own entity in a joint venture and is separate from the parties’ own business interests. Joint ventures provide an excellent opportunity for businesses to collaborate and combine their complementary strengths and assets.
There are a number of differences between a partnership and a joint venture. This includes differences in the parties involved, liabilities and length of the agreements.
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