Succeeding in business is all about taking advantage of opportunities. To do so, however, requires having access to the necessary talent, tools, and finances. Very often this means joining forces with others who have similar interests.
There are several forms such an alliance can take. Two of these are partnerships and joint ventures. While often thought of interchangeably, they are crucial differences between each type of organization. These include:
- Partnerships are usually long-term associations. They are intended to share the burdens associated with most or all aspects of running a business; as such, their focus can be quite broad. Joint ventures, on the other hand, are typically formed to take advantage of a particular opportunity; as such, their focus is generally quite specific and their life span is shorter than a partnership.
- A partnership is regarded as a “pass through” structure, meaning that the profits and losses of the partnership are attributable directly to the partners. Joint ventures can be formed in various ways, from a simple contract laying out each party’s rights and obligations, to a formal entity like a corporation being formed and its shares being issued to the parties involved in the joint venture. If a corporate form is chosen, this could lead to some tax advantages and disadvantages, depending on the situation. You should always consult with a tax accountant before deciding how to structure a joint venture.
- Typically, the partners are personally responsible for the liabilities of the partnership. On the other hand, a joint venture can offer some greater degree of liability protection to its participants, particularly if the joint venture is formed as a corporation or limited liability company.
- Fiduciary responsibilities. In most cases, the each partner has fiduciary duties to the partnership and their fellow partners. With joint ventures, however, these responsibilities are usually limited to the venture itself.
Partnerships vs. Joint Ventures: Which is the Right Way to Go?
The answer to this question varies from one situation to the next, depending on factors such as these:
- The risk tolerance of each party in the organization.
- The resources each party brings to the table.
- The overall goals of the parties; i.e. do they intend to work together over the long-term or for a limited period of time only?
Both partnerships and joint ventures offer their share of benefits and shortcomings. Which of the two is best for your situation is a question to discuss with an attorney, accountant, or other professional. With sound guidance, both your interests and those of your associates can be well represented.
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