In today's Freedom Friday blog and email newsletter, I want to talk about a topic that came up with a recent client, but also has been an issue with some of my other clients. One of my new clients came to me with a proposed partnership agreement and wanted me to review it. Of course, because this was for a general partnership agreement, I told the client this is not a good idea. In fact, I told the client that either the other business partner needs to add him to the partner's LLC, or they need to create a limited partnership which would be more expensive for them. In today's Freedom Friday blog and email newsletter, I'm answering the question, “What is the difference between a partnership and a joint venture?”
Now, before I answer the question, you might be asking yourself, “I know what a partnership is, but what's a joint venture?” Truthfully, you can have a business operating in a way that may be both a joint venture and a partnership, especially a general one. However, there are several key differences between a partnership, of any kind, and a joint venture. The first key difference is how the partnership or joint venture is formed. To begin, there are three (3) different kinds of partnerships: general partnerships, limited partnerships, and limited liability partnerships. A general partnership, if it is going to last longer than one year, and be enforceable, like all other contracts, must be formed by a written partnership agreement. However, there is no requirement for filing a document with the Oklahoma Secretary of State. On the other hand, if you're forming a limited partnership or a limited liability partnership, in addition to a written partnership agreement, these partnerships are also formed under specific state laws, and require filings with the Oklahoma Secretary of State.
A joint venture is different because it usually does not involve the creation of a new business entity. Two people (or companies) can work together under a joint venture without forming a new business entity. However, in order to form a joint venture, there must be a single defined project, an express or implied agreement, a common purpose intended to be carried out by the individuals in the joint venture, shared profits and losses, and each member's equal voice in controlling the project. Courts look to the circumstances between the parties to determine if a joint venture exists. If the joint venture is intended to last longer than one year, then there should be a written joint venture agreement in place to enforce the rights of the members of the joint venture.
The second key difference between a partnership and a joint venture is the purpose. The purpose of a partnership, especially a general partnership, is to establish a relationship between two or more partners to form a new business. This is usually demonstrated by a partnership agreement which identifies the necessary contributions, division of ownership, distribution of profits, etc. Partnerships, if they are formed in the right way, are also designed to last the lifetime of the business, and the long-term profit of the new business is often the purpose of a partnership. However, the purpose of a joint venture is usually to achieve a specific goal, and each party contributes its share to an agreed-upon task. Long-term profit may or may not be a purpose of a joint venture, even though the profits and losses may be shared by the parties.
The third key difference between a partnership and a joint venture is the length of time that the partnership or joint venture lasts. A partnership is meant to be a long-lasting relationship between two or more partners to operate a new business. If there are only two partners, and one decides to leave, the partnership is dissolved. However, joint ventures have much shorter time frames. Joint ventures typically are created to achieve short-term projects or goals; the goal could be a new business venture, but the goal more typically is a shared project or goal between two or more already existing businesses (or sometimes individuals).
Thinking about starting a small business? Or maybe your business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at [email protected] to schedule a FREE strategy session.
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