In the world of business, there are two different types of collaborations with slightly different definitions. These are joint ventures and partnerships. It is important to understand the difference between them, although many people get them confused. It is common for even experienced business professionals to forget what makes a joint venture different from a partnership.
- Joint Venture – Two or more people joining together to work on a single business project.
- Partnership – Two or more people who agree to jointly own a single business.
Part of what makes the distinction confusing is that partnerships and joint ventures are not mutually exclusive. Technically, a joint venture is a type of business partnership. Generally, the term “partnership” refers to when two people each own a portion of a business. The biggest and most significant difference between these two agreements is that a partnership is much more well-defined. By design, there are strict contracts that all involved parties sign making the agreement officially into a partnership. A joint venture, on the other hand, is looser and vaguer. The partnership can be defined as a joint venture if it contains certain attributes. These attributes include split responsibilities over losses, common interest in the partnership’s success, and shared control.
There are some significant differences between a partnership and a joint venture. When choosing what kind of agreement you want to enter into, understand these key differences.
- Profits – In a joint venture, both parties agree to share the profits and losses of the joint venture equally, but in a partnership profits and losses are divided according to the initial agreement.
- Contributions – In a joint venture, the two parties may not provide the same type or amount of contribution. In a partnership, all parties are co-owners, and thus have identical legal responsibilities.
- Businesses – Joint ventures may involve multiple businesses working together, but a partnership is a single business by definition.
- Duration – Generally, joint ventures are designed to only last a certain amount of time from the very beginning. Partnerships are always intended to be a permanent agreement that can last years.
Other Things To Be Aware of
Importantly, there are a few areas that must be treated differently depending on whether you are in a joint venture or partnership. These are:
- How taxes are filed and calculated.
- How liability is determined.
- How trusts are established.
A corporate lawyer in Melbourne, FL can explain how these differences work in your specific state in detail. It is a good idea to contact a business lawyer before beginning a partnership of any kind.
Thanks to the Law Offices of Arcadier, Biggie & Wood for their insight into business law and the difference between joint ventures and partnerships.