What is a Joint Venture?
A joint venture is a contractual agreement between two businesses to undertake a specific task. Though there are many different reasons to form a joint venture, most commonly, the specific task is aimed at market penetration efforts that require a huge amount of resources or the establishment of local business partnerships. The joint venture may also be aimed at acquiring resources that would otherwise be hard to obtain, such as technology, research and development, or intellectual property.
Joint ventures share similarities with general business partnerships, and are often confused. While a joint venture is legally similar to a general partnership, there are differences that set the two business entities apart.
Business Partnerships vs Joint Venture
The biggest difference between a joint venture and a business partnership is that while a joint venture consists of two different business entities joining forces, a partnership is made up of two or more individuals. The main goals of a joint venture are also different from the goals of business partnerships.
A general partnership is created when individuals decide to take on an entire business venture as co-owners, an arrangement in which all profits and losses are shared between the partners of the business. In a joint venture, the goal is similar, but is limited to a specific duration, or to a specific task. Further, while a general partnership becomes one business entity, a joint venture is considered three business entities: the two businesses that come together to join forces, and the contractual agreement to form a joint venture.
When business partnerships are formed, the individual owners work together to create a business from the ground up. Partners in a joint venture are joining forces as two already-established businesses, possibly with separate missions and business goals. Unlike partnerships, in which the individual partners share ownership of the entire business, the two different entities of a joint venture only share ownership of the joint venture, and not of each other. Thus, while the individual partners in a partnership share an identity, the businesses in the joint venture retain their separate identities as businesses.
Liabilities within Joint Ventures & Business Partnerships
Liabilities between joint ventures and business partnerships differ as well. Many states hold that that the individuals in general business partnerships are jointly and severally liable for all business debts. This means that if a partner rear-ends a car while making a business delivery, each partner is personally liable for the debts of this accident. Further, if the individual partner does not have the money to pay off the debts caused by his own negligence, a partner that could afford the debt would have to pay. However, partners in a joint venture enjoy more limited liability than the partners in a general partnership. Because the businesses in a joint venture retain their individual identities, they are usually only liable for the amount of their investment in the joint venture.
A joint venture can be a great way to accomplish a business task that would otherwise be difficult or impossible to accomplish through just one business. If you are thinking about forming a joint venture with another business, you should speak to a business attorney right away. To ensure that your business goals are being adequately addressed, it is imperative to have legal representation through the formation of a joint venture contract.