Difference Between a Joint Venture and a Partnership: Everything You Need to Know
The difference between a joint venture and a partnership is that joint ventures are for a specific project.3 min read
The difference between a joint venture and a partnership is that joint ventures are for a specific project. In addition, you don't give up control of half of your business with a joint venture, as you would in a partnership.
What Are Joint Ventures?
Joint ventures are a type of contract where two or more parties will join each other in order to complete a business project. With a joint venture, all the parties involved will share both losses and profits.
Parties in a joint venture can determine profits and losses in two ways. First, if the venture is short-term, losses and profits can be distributed once the project has been completed. Second, for long-term ventures, distributions can occur periodically over the course of the project.
In a joint venture, multiple people combine their efforts to complete a business endeavor and earn a profit. The parties of the joint venture can make a variety of contributions to the project:
Although all parties should contribute something to the project, the contributions made by the parties are not required to be equal. Joint ventures are focused on a single project, and because most joint ventures only last for a set period of time, they are commonly referred to as temporary partnerships.
One example of a joint venture would be two people combining their efforts to manufacture a product that they would not be able to create individually. For example, you might enter into a joint venture to develop a new piece of computer software. In a joint venture, profits and losses are shared, meaning you won't need to give someone else half of your business.
Operations of law do not create joint ventures. A confidential or financial relationship between multiple parties is essential to a joint venture.
To decide whether a joint venture actually exists, several elements must be taken into account:
- A community interest in completing the project is formed.
- The parties involved have right of or joint control of the project.
- The subject of the project is of joint interest.
- The parties have the right to share profits resulting from the project.
- All parties are responsible for sharing any losses that occur.
Are Joint Ventures and Partnerships Different?
While joint ventures are agreements between two or more parties for the purpose of undertaking a project, partnerships are an association of multiple people for the purpose of owning and operating a business. Both relationships, however, are focused on earning a profit.
When two or more parties enter a partnership, it means that they co-own a business and will do so for as long as the business is in existence. Joint ventures and partnerships are similar in that the parties in either association will contribute their effort, time, and money for a common purpose.
Partnerships require at least two partners. If the business the partners will own is in the banking industry, there can be no more than ten partners. Businesses in other industries have a 20-partner limit. Essentially, there is very little difference between partnerships and joint ventures.
In fact, joint ventures are best understood as a type of partnership. That being said, the entities involved in each relationship are usually different. Joint ventures, for instance, almost always involve two or more companies combining their efforts for a common purpose. Partnerships, on the other hand, are comprised of individuals who associate for the purpose of running a business.
When two companies decide to enter into a joint venture, they often do so to avoid competition in a specific field. In a partnership, the owners of a business join together to make a profit. While profit is also an important part of a joint venture, it is not the only factor that binds the different parties. Sharing the costs of research and development for example, can be a reason that companies decide to enter a joint venture.
Another difference between a joint venture and a partnership is how long each relationship lasts. Partnerships can last many years and usually only end when the partners decide that their relationship has run its course. Joint ventures tend to be much shorter and will end once the goal of the parties involved has been achieved.
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