November 11, 2020
In the world of business, there are many terms that seem to be interchangeable but simply are not the same thing.
Joint venture and partnership tend to be used interchangeably but there are key differences between them that should be noted. The differences between these two termsentities is important to note because they carry very different meaning legallyseparate legal conditions.
If a business owner incorrectly describes a joint venturepartnership as a partnershipjoint venture then it could pose a potential problem and confusion down the road. Elucidating the joint ventures v. partnerships debate will allow for a more holistic understanding of the kinds of relationships within the business world.
Gaining this knowledge could allow a business owner the ability to decide what kind of relationship needs to be pursued and which one is inapplicable.
While both joint venture and partnership describe two entities that work toward a common goal, this is where the similarities end.
Joint ventures and partnerships differ in the length of time of the relationship, purpose, formation, rights granted to the members, and different laws associated with each.
These differences outline the major distinctions, but to gain a better understanding of what relationship is necessary for your given circumstance, it is advised to get a legal consultation. BizCounsel is a great way to get timely answers to anything business law and to seek out professional advice.
There are many other forms of business relationships that a business law professional could provide that are not outlined within the article, but for now, let’s talk about the difference between these two commonly confused entities.
Length of Time
One of the key distinguishing factors between joint ventures and partnerships is the amount of time that the relationship lasts.
Typically, a partnership is a long lasting relationship between two individuals that work towards the common goal of a business. Partnerships last as long as both parties are within a business. When one partner leaves, the partnership is dissolved.
For a joint venture, the timeframe is typically much shorter. A joint venture is characterized by two business entities that come together to achieve a short term goal or project. Joint ventures can be thought of more as a collaboration of two businesses for a project.
One joint venture that is a popular example of the characteristic short timeframe is in the development of the new Toyota Supra. The iconic refresh of the manufacturer’s iconic sports car was actually a joint venture with BMW. Both businesses worked on the development of the single vehicle. After its debut, Toyota and BMW could go their separate ways and continue to develop their own separate cars. This example illustrates the impermanence of joint ventures, which can be beneficial in certain circumstances.
Purpose
The purpose of establishing the relationship is another key point of differentiation. Both relationships aim to create a relationship between entities but they differ in the reasoning underlying the formation.
For a partnership, the purpose is to develop a relationship where two or more individuals are in a business together. The partnership agreement can outline the necessary contributions, division of equity, distributions of profit, and more. Partnerships are designed to last and provide a framework for partners to collaborate towards facilitating a successful business.
Seeking legal advice when drafting a partnership agreement can ensure that partners have equal obligation and incentive to continually provide for the business. A poorly written agreement could result in a partnership plagued by a free-rider that does not contribute but reaps the benefits of the hard work of the other partner.
The purpose of a joint venture is to explore an untapped market or a new audience. Joint ventures are created by two or more businesses that aim to work collaboratively to attain a project or partnership. A great example of a famous joint venture that has aimed to gain a wider audience is the joint venture between Hulu and Disney+ streaming services.
The two distinct businesses teamed up to offer both streaming services in a bundle deal. The purpose of this partnership is to symbiotically lure the loyal fans of each business to the other platform. Disney fans became Hulu subscribers while the reverse is also true. This relationship is not one that is necessarily permanent and illustrates the purpose of joint ventures.
Both parties benefit from added traffic to their streaming service and attaining new audiences that they likely would not have otherwise obtained.
Formation
The formation of the two relationships is another point of differentiation.
For a partnership, the formation is typically outlined in a document called a partnership agreement. The document created is legally recognized and outlines items such as percent ownership, business structure, distribution of profits, and more. There are many laws surrounding the establishment of a business, and having a partnership agreement is a great way to protect each partner legally.
An example of when a partnership agreement can be beneficial is in the case that a partner decides to leave a business. If this occurs, the partner that stays is able ensure that they are protected through the stipulations outlined in the partnership agreement.
For the formation of a joint venture, businesses are given more freedom to decide how the venture will be set up. Since a joint venture is typically not a separate legal entity but rather a joint collaborative effort between businesses, there are not many legal requirements for its formation.
For a successful joint venture however, each party should consider their ability to contribute and determine an effective strategy for the joint business venture. Proper planning goes a long way and establishing this in the onset will minimize the number of headaches later on. Typically, joint venture relationships are outlined in a contract even if a contract is not a legal requirements. Ensuring the contract is detailed and free of loopholes is vital in creating a successful venture and should be drafted by a business law specialist.
Conclusion
In conclusion, joint ventures and partnerships both outline a relationship between two or more entities. These relationships are distinctly different in three different capacities: the length of the relationship, the purpose, and the formation process of each.
Partnerships represent a relationship between individuals to pursue a long term business together throughout the life of the partnership. A joint venture represents a relationship between two businesses for the purpose of attaining a short term goal.
With the differences between the relationships, a business owner can have a better understanding of what kinds of relationships are possible. While the differences between these two are important, there are many other forms of business relationships that carry distinct legal attributes that can make them beneficial to a given situation.
Seeking out professional legal help in determining what kind of relationship is most advantageous to a given situation is highly advised. BizCounsel is the perfect medium to get this advice, even for business owners that already have a few years under their belt and feel like they’re knowledgeable about legal issues.
Being prepared with a legal provider that is available whenever needed is ideal and is what makes BizCounsel the perfect choice when creating partnership agreements, joint venture contracts, or any other business to business contracts.
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