Partnerships and Joint Ventures: What’s the Difference?
Partnerships and joint ventures are two business entities that are often used interchangeably, and to the general public, mean one and the same. But they do have different meanings, and do different things.
Understanding a Partnership
As a general rule, a partnership is intended to last for a long time, and undertake multiple projects over the course of time. So, for example, if you and a friend were going to buy, fix up and sell houses, many every year, for as long as feasible, you would be more likely to have a partnership.
The partnership in theory never ends, absent taking action to dissolve it. Like a company, it continues, with no “end date.”
A partnership is much broader, and can be an ongoing collaboration. For example, Amazon partnered with big box retail company Kohl’s to service Amazon product returns. General Mills partnered with restaurant IHOP, to make cereal branded with the IHOP logo on it.
All partners have an ownership interest in the partnership, and do well, or lose money, if the partnership succeeds or fails. All partners suffer, or succeed, as the partnership does.
Understanding Joint Ventures
Unlike the long term nature of a partnership, a joint venture would be a one time project—you and your other venturers are undertaking a single project, and when the goal of the project is accomplished, the joint venture is over.
Joint ventures may share equally in profits or losses, but do not have to, depending on what the joint venture agreements say. In many cases, a joint venture agreement will limit parties to lesser profits or losses, depending on their contributions to the joint venture.
Additionally, unlike with a partnership, where a separate entity, the partnership, exists, a joint venture does not form a new business entity.
One interesting thing about a joint venture, is that it doesn’t have to be about profit, at least, not immediately. So, if you and others were engaged in a project to create a new water filtration technology to help the environment, that could be a joint venture, even though the project’s immediate goal is not profit.
Because of the longer term intentions of a partnership, and because a partnership forms a new business entity, a partnership is more likely to (or at least, should) have a joint partnership agreement.
A joint venture, being shorter, and having a more singular goal, and not forming any new entities, would be more likely to have a contract or series of contracts, memorializing the duties and rights and responsibilities of the parties.
If there is a breach of a partnership agreement, partners may have to terminate a partner’s interest, or in more severe cases, petition a court to dissolve the partnership if the partners cannot agree to do so.
With a joint venture, if there is a breach, the case is filed as a straight business breach of contract case.
Need help with your partnership or joint venture agreement? Call the West Palm Beach business lawyers at Pike & Lustig today for help.