Difference Between Joint Ventures and Partnership

Difference Between Joint Ventures and Partnership

What is a Joint Venture Agreement?

In a joint venture, two or more people or entities collaborate to achieve a common strategic objective while continuing to function as independent entities. This agreement may be on a short-term or long-term project basis, such as property development, mining syndicates, or transportation agreements.

In this arrangement, different parties combine their time and assets to accomplish a common objective, but the obligations they incur under the terms of the agreement are kept distinct. At the conclusion of the enterprise, the profits are often divided among the parties.

A joint venture can be structured in two ways:

1. As an incorporated joint venture, where all terms are outlined in the agreement;
2. As an incorporated joint venture, where creating a new company is necessary to manage the shared business activity.

Advantages & Disadvantages of a Joint Venture

Advantages:	Disadvantages:
Business expansion; Suitable for businesses of all sizes;Development of new products and services; Greater access to resources, skills, and staff; Potential for future joint ventures; andTemporary commitment between the parties.	Difficulty finding trustworthy people to enter the agreement with; Uncertainty as to the success of the venture; Risk of ulterior motive;Parties may not perform to the same standard; and Risk of conflict may arise.

What to Include in a Joint Venture Agreement

There are several terms you should include in your joint venture agreement to ensure each of the parties are on the same page, such as:

• Joint venture specifics including goals and structure;
• Each party’s obligations;
• Financial contributions;
• Distribution of profits and losses;
• Dispute resolution;
• Liabilities of each party;
• Duration of the venture;
• Intellectual property;
• Books of accounts and audit; and
• Termination.

Note: this is not an exhaustive list, we recommend you seek legal advice to draft this venture agreement.

What is a Partnership Agreement?

A partnership is a type of business structure where two or more people manage a business together in a continuing relationship. The partners share joint responsibility for each other’s operations as opposed to being in an agreement between two separate entities. If the other partners are unable to pay, one partner will be responsible for the partnership’s debts. A partnership is a continuous commitment and is established to pursue a long-term business journey.

Advantages & Disadvantages of a Partnership Agreement

Advantages:	Disadvantages:
Easy establishment; Lower start-up costs; More flexibility, allowing the business structure to be changed;  Opportunity for income splitting; Less external regulation than having a company; and The business affairs of the partners remain private.	Each partner is jointly liable for other partners’ debts; Each partner is responsible and liable for the actions and omissions of the other partners; Profits must be shared with other partners; and Partners have unlimited liability.

What to Include in a Partnership Agreement

There are several terms you should include in your partnership agreement to ensure each of the parties are on the same page, such as:

• Clearly define the roles and responsibilities of each partner;
• Specify the operating hours of the business;
• Determining ownership of intellectual property created during the partnership;
• Ensuring measures to maintain confidentiality;
• Outlining the procedures for resolving disputes;
• How the profits and losses will be divided;
• Defining the decision-making process; and
• Determining a course of action if a partner wishes to leave the partnership.

Note: this is not an exhaustive list, we recommend you consult legal advice to draft this venture agreement.

Comparison Chart

Basis for Comparison:	Joint Venture:	Partnership:
Meaning	A joint venture is a company established by two or more people with a defined goal and period in mind.	A partnership is a type of business structure in which two or more people concur to do business and share profits and losses.
Governing Act	Corporations Act 2001 (Cth).	Partnership Act 1958 (Vic).
Business Executed by	Co-venturers.	Partner.
Trade Name	No.	Yes.
Ascertainment of Profit	At the end of the venture or on an interim basis as the case may be.	Annually.
Maintenance of Separate Set of Books	Not necessary.	Mandatory.
Liability	Each partner’s liability is limited to their contribution to the business.	Each partner is jointly and severally liable for the other partner’s debts.
Parties involved	Two or more persons or entities join together for a particular project or purpose.	Two or more parties (up to 20) joining together for a combined business.
Length of agreement:	Usually have a termination date or are contingent on a specific event.	Last indefinitely with the partnership only dissolving in certain circumstances.
Tax Liabilities	Not obligated to file an income tax return and are not liable for taxes. When a taxation event occurs, the relevant parties are liable to tax at their individual marginal income tax rates.	The requirement is that each partner provides information about their partnership income in their individual income tax forms. They will then pay taxes at their individual marginal income tax rates on the portion of that income that they received.