One of the most challenging decisions you’ll ever make as an entrepreneur is whether to go with a joint venture vs partnership agreement. These agreements are similar in concept, but there are significant differences that impact the way things operate, the rights of the parties, and the protection of your business.
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What is the Difference Between Joint Venture and Partnership?
The major difference between a partnership and a joint venture is that a partnership is an agreement between two or more people to undertake a business together. In contrast, a joint venture is a contract between two or more businesses/enterprises to work together on a single project or endeavor.
In other words, a legal arrangement where two or more people share ownership of a business is called a partnership. Each member of the partnership contributes money, effort, and skills to the venture, and the profits and losses are shared among the owners.
In contrast, a joint venture is a contract between two or more entities to work together on a single endeavor. Unlike a partnership, a joint venture is a formal agreement that spells out the rights and responsibilities of each participant, and the profit and losses are attributed to each business on a proportional basis.
Joint Venture vs Partnership Comparison Chart
This Joint Venture vs Partnership comparison chart is designed to help business owners with their decision-making process. It's a big decision that can make or break your business. This chart compares and highlights nine key differences between a partnership and a joint venture:
see chart in the Google Doc
Joint Venture vs Partnership Comparison Points
When you are looking to work with another business, you can consider a few different options. Joint ventures and partnerships are two of the most common types of relationships.
A joint venture or partnership has a lot of similarities to a traditional business relationship. However, you should understand some key differences before deciding which direction to go in.
What is a Joint Venture Partner as Opposed to a Partner?
When determining which business relationship to enter into, many ask, “what is a JV partner vs a partnership?”
A joint venture (JV) partner is an individual or company that participates in a business venture with another business. A partnership is an agreement between two or more people to share in a business’s ownership and share in the profits and losses.
The most significant difference between a JV partner and a partnership partner is that a JV is a contract that spells out each party's rights and responsibilities. On the other hand, a partnership is a legal agreement between two or more people to share in the ownership of a business and everything that it entails.
Joint Venture vs Partnership Tax Liabilities
When deciding between a partnership and a joint venture, one crucial consideration is the tax liabilities that each arrangement will present. Joint ventures are subject to double taxation, which means that both the federal and state governments tax the profits of a joint venture.
In contrast, partnerships are not double-taxed, which means that the federal government only taxes the profits of a partnership. Therefore, a partnership is often viewed as a more tax-efficient partnership than a joint venture. However, this isn't always the case.
The tax liability of a joint venture depends on the type of joint venture. For example, a joint venture that is considered a limited liability company (LLC) is not double-taxed, but a joint venture that is considered a partnership is double-taxed. So, it’s essential to consider your options when it comes to an LLC vs joint venture.
Partnership vs Joint Venture Agreements
Another important consideration when determining the type of business relationship to enter into is the agreements that are created. The agreements created between a partnership and its partners will govern the relationship. These agreements can be as simple as a written partnership agreement or as complex as a joint venture agreement.
In a partnership agreement, the terms of the relationship are spelled out, such as how profits and losses will be shared. These agreements usually include details such as how decisions are made, how disputes will be resolved, and how the partnership will be dissolved. The partnership agreement will also include the obligations of each partner.
In a joint venture partnership agreement, the agreements are created for the joint venture itself, which can be as simple as a contract for two parties to work together on a project or as complex as a joint venture agreement that can include an operating agreement and a shareholder’s agreement.
The most basic joint venture agreement in Florida will outline the joint venture terms, such as the project timeline, deliverables, and the division of profits and losses. In a more complex joint venture agreement, the operating and shareholders agreements will be included and an outline defining general partner vs limited partner (should one be needed). The operating agreement will outline the responsibilities of each party, such as the responsibilities of the parties to make decisions, the process for making decisions, and the process for resolving disputes.
Ownership in a JV vs Partnership
In many instances, ownership in a JV vs partnership is very similar in that ownership is evenly split. However, that's not always the case in a joint venture partnership agreement.
In a JV, the ownership is often determined by the contribution of each party rather than being equally divided. For example, a party that brings in the majority of the funding for the JV is often considered the majority owner, which may entitle them to greater decision-making authority.
Partnership vs Joint Venture Liability Exposure
The liability exposure of a partnership and a joint venture is another important consideration when determining the type of business relationship to enter into.
In a partnership, the partners are equally liable for the debts and obligations of the partnership. As a result, if one partner fails to meet their obligations, the other partners are responsible for covering the shortfall.
In a JV, the liability of each partner is determined by the agreement created between the parties, which can result in greater or lesser liability exposure. For example, a JV may specify that each party is individually liable for their share of the debts and obligations of the JV. This can protect the other parties if one party fails to meet their obligations.
Partnership and Joint Venture Profit Sharing Models
While the profit-sharing models in a partnership and a JV can be similar, they often differ in terms of the decision-making process.
For example, in a partnership, the partners can share the profits and losses on a 50/50 basis. However, in a JV, the partners may agree that each partner has an equal vote in decision-making, or the decisions may be made by a majority vote. In some cases, the partners may decide to have a profit-sharing structure in which each partner is entitled to a share of the profits based on their contribution.
The Formation and Purposes of a Joint Venture vs Partnership
The best way to understand the difference between a joint venture and a partnership is to understand their formation and the purposes for which they are formed.
A joint venture is a business relationship in which two or more parties work together to pursue a single business opportunity. The parties invest their own capital, labor, and expertise but share in the profits and losses of the joint venture.
A partnership is a business relationship in which two or more parties share a single business venture and its profits and losses. The partners contribute money, property (physical and intellectual), and/or labor to the partnership and are entitled to share the profits and losses.
Length of relationship in a JV vs Partnership
A JV can be a very short-term arrangement, depending on the business opportunity. For example, a party may decide to form a JV to pursue a business opportunity for a specific project, such as a film, that requires a short completion period. Once the project is complete, the JV may dissolve.
In contrast, a partnership is usually an ongoing business structure with a duration that is defined in the partnership agreement. The purpose of a partnership is to share in the profits or losses of a business venture. Each partner has an interest in the business’s success, and the partnership agreement defines the terms of that interest.
Fiduciary duties in a JV vs Partnership
Since partnerships and joint ventures share many of the same goals and objectives, most courts apply the same principles to joint ventures as they apply to partnerships. However, when it comes to the fiduciary duties of each party, there is a significant difference between a JV vs partnership.
The fiduciary duties in a partnership and a joint venture are designed to protect the other partners from being taken advantage of by other partners.
In a partnership, the fiduciary duties are those of loyalty, care, and good faith. In a joint venture, the fiduciary duties are similar in that the partners are required to act in the other partners’ best interests and act in good faith.
Need Help Navigating Partnership or Joint Venture Law?
If you are starting a new business partnership or a joint venture, it is essential to understand the legal framework governing those business relationships.
Whether you are in the process of creating a partnership or a joint venture, our attorneys at Cueto Law Group can help you navigate the complex legal issues that arise in these types of business relationships.
To speak to one of our attorneys about your specific situation, call 305-777-0377 or contact us online today!
FAQs
Still have a few questions? Below are answers to some of our most frequently asked questions regarding joint ventures vs partnerships:
Is a Joint Venture a Legal Entity?
No, a joint venture is not considered a legal entity. The activities and obligations of joint ventures are shared and defined by the joint venture agreement (rather than the laws of a particular jurisdiction). Instead, a joint venture is considered a business agreement, which is individually enforceable like a contract.
Is a Joint Venture a Partnership?
No, while similar to partnerships, joint ventures are not the same. The key difference between the two is that a joint venture is an agreement to work along with another entity to carry out a particular task, while a partnership is an agreement to own/operate a business jointly.
Is a Strategic Alliance the Same as a Partnership or Joint Venture?
An agreement to cooperate in the management and control of a firm (without ownership) is known as a strategic alliance or a joint venture. A strategic alliance or joint venture aims to combine the strengths of two or more entities to achieve a common goal.
