Joint ventures and partnerships are common forms of legal structures used by business owners to combine resources, talents, or skills with another person or business. The two terms are often mistakenly interchanged to define the association with the misunderstanding that they are the same. On the surface, these partnerships and a joint venture share many similarities, both involving more than one party getting together for the purpose of undertaking business or some other project. However, there are significant differences within legal language that define distinct business models and the regulations surrounding each.
A partnership is usually only made up of persons, two or more, who form a legally recognized association for the purpose of operating a business. A partnership is often described as a voluntary association of two or more people who jointly own and carry on a business for profit. A joint venture, on the other hand, can be individuals or entities such as corporations, or even governments and businesses, that are engaged in a single defined project. The creation of a joint venture is determinant on an expressed or implied agreement with a unified objective that the members intend to fulfill, shared profits and losses, and governing power of the members.
The most significant difference between partnerships and joint ventures is the goal of the involved parties. A partnership’s purpose is oriented towards managing a business or long-term enterprise and making a profit. Contrastingly, joint ventures are built to achieve a specific goal, with each party contributing their share in labor, capital, or other resources.
Partnerships are designed to last for the life of the business, with the foundation to exist infinitely. On the other hand, joint ventures are meant for short-term projects, spanning 5-10 years, just long enough to allow the parties to reach a particular goal. The lifespan of a joint venture is typically decided by the members and explicitly stated in the joint venture agreement.
When an individual partner in a partnership is charged with any offense, only the responsible party is at fault. This protects the other partners that have entered a deal before the event occurred. Within a joint venture, both parties are seen at fault because of the nature of the entity. The members’ accountability greatly increases, making the model riskier in the short-term.
Partnerships generally begin with a partnership agreement or contract between the individuals who make up the partnership. The contract clearly addresses the terms of the partnership including the ownership, shared profits and losses, and exit strategies. Interestingly, joint ventures don’t necessarily require a written agreement for formation. If a contract exists, it’s a detailed and short-term agreement that states the specific goal that is going to be undertaken, addressing terms similar to those of a partnership.