Joint Business Partnership: Everything You Need to Know
A joint business partnership is a business venture taken on by two people or companies with the same goal.3 min read
A joint business partnership is a business venture taken on by two people or companies with the same goal. The two entities forming a joint venture will create a business relationship through the exchange of value of some sort.
What Is a Joint Venture?
A joint venture is a type of business partnership but is different from a basic partnership. When two entities come together to complete a project or other type of short-term business goal, they can form a joint venture using a joint venture agreement. The agreement makes sure both sides are on the same page.
Joint Venture Versus Partnership
Unlike a joint venture, a partnership is meant for a long-term business goal. If the purpose of the joining of two parties is to start and run a business for the foreseeable future, they will likely form a partnership and not a joint venture. The main difference between partnerships and a joint venture is the relationship's duration. Joint ventures take on projects, partnerships are businesses.
When two entities form a joint venture, they enter into a contract and agree to work toward the same specific task. In such an agreement, the two parties involved will likely share the costs of the project whether financially or with manpower. Once the goal is reached or the task is complete, the joint venture will be dissolved.
When two entities form a partnership, they become owners of a business together. This means that they will share in the profits and losses of the business as well as the liability, depending on the type of partnership they choose. Partnerships are meant to continue indefinitely as other businesses do.
Members of a partnership and a joint venture include individuals, groups, or other business structure types. Two corporations can form a partnership or joint venture, or one corporation could form with an individual. Capital cost allowance in a partnership is determined by the provisions laid out in the partnership agreement. Joint ventures typically allow for unlimited capital cost as long as both parties are in agreement.
Basically, a joint venture is a partnership meant for one transaction. Because it is a type of partnership, the same liabilities and rights apply to joint ventures as they do to partnerships.
Why Use a Partnership Agreement?
A partnership agreement is a written or oral agreement, or sometimes it's simply implied, between entities or individuals involved in a partnership. According to the Uniform Partnership Act, used as the law of partnerships in many states, partnership agreements are legally binding and are amendable. They act as a sort of partnership operating agreement like an LLC's operating agreement.
Partnership agreements are very important as they govern the business relationship between those involved in a joint venture or partnership. They lay out the following aspects of the relationship:
- Who the partners are.
- Partner duties and responsibilities.
- Partner investments or contributions.
- Distribution of shares.
- Provision for partnership dissolution or termination.
However, by law, a partnership agreement cannot relieve partners of certain basic responsibilities such as liability (unless forming a liability partnership). It's important to use caution with the wording of a partnership agreement because it can affect how the partners involved can make decisions and changes regarding the business. Without a carefully drafted partnership agreement, you could end up in a situation where your partner is making drastic changes without consulting you.
What Is a Joint Venture Agreement?
A joint venture agreement is essentially a partnership agreement with a few differing aspects. The main difference is that the joint venture agreement must clearly outline the goal of the venture. It should state why the joint venture is being formed and for how long. There are fewer requirements in a joint venture agreement. It need not specify the rights or duties of those involved.
Joint ventures can be formed orally or implied, so a written document is not necessarily required. If two parties are acting as if they have formed a joint venture, but never wrote an agreement, their business relationship is still valid and legal. The lack of a written joint venture agreement can lead to legal issues or miscommunication between the parties, so it is better to form one even though it's not required.
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