It’s easy to confuse a joint venture and partnership, however, it’s critical to understand that while there are similarities, each structure gives rise to distinct legal obligations. Below, we set out the features of both a partnership and joint venture before turning our attention to three key differences.
A partnership is a relationship between two or more parties, either natural or legal persons (i.e. individuals or companies) carrying on a business in common with a view to profit. Parties commonly use this structure for ongoing business. State and territory legislation governs partnerships in Australia. For example, in New South Wales the relevant statute is the Partnership Act 1892 (NSW).
A partnership is not a separate legal entity, and every partner has unlimited liability. Each partner is, therefore, jointly and severally liable for the actions of the others in contract, tort and crime. As such, a partner is responsible for the liabilities that another partner incurs on behalf of the business, any torts that occur in the normal course of business and also for any wrongful actions on the part of their partners. Partners typically share profit or loss proportionately, and the partnership’s assets and property belong to all the partners.
At law, partners are in a fiduciary relationship with each other. As such, partners have fiduciary obligations to each other. A party with fiduciary obligations to another must always act in their interests, even to the exclusion and detriment of their own. In the context of a partnership, this means that partners cannot make secret profits, compete with the business, must avoid any conflicts of interest and must maintain the confidentiality of all information. These duties exist during, and even sometimes, beyond the lifetime of a partnership.
A joint venture is an agreement formed between parties to work in common towards a commercial goal or project, the proceeds of which they share. Importantly, the parties to a joint venture maintain their status as separate entities. Individuals, as well as corporations, can form a joint venture. Joint ventures typically end when the parties achieve their goal and are common in the context of property development, mining syndicates or research and development agreements.
In a joint venture, the parties are only responsible for the liabilities or debts of the venture in the proportion determined in the joint venture agreement. Similarly, this contract dictates the amount of profit they receive or loss they must carry. It also covers other matters including the structure and objectives of the venture and each party’s financial contributions.
The agreement together with the common law and the law of contract govern joint ventures. If the parties to the venture are corporations, the Corporations Act 2001 (Cth) will also apply. Unlike partnerships, the parties to a joint venture are not necessarily in a fiduciary relationship with each other. However, the parties do owe each other those legal obligations specifically nominated in their agreement or required under other sources of law governing the venture.
What’s the Difference?
There are several significant differences between partnerships and joint ventures. First, in a partnership, the partners are joint and severally liable for each other. Conversely, in a joint venture the parties are liable only to the extent required by their agreement. Second, parties typically use a joint venture for a single, delineated goal or project whereas partnerships are more often associated with ongoing businesses. Third, while partners are in a fiduciary relationship with each other, the parties to the joint venture are not necessarily so but could be, depending on the particular circumstances.
At times, it can be difficult to differentiate between a partnership and a joint venture. Courts in the past have decided some joint venture agreements were, in reality, partnership agreements. For this reason, parties looking to form a partnership or joint venture should speak with a legal professional to understand their obligations and ensure their agreements are appropriately drafted. If you have any questions about which best suits your needs, get in touch with our business structure specialists on 1300 544 755.