Partnerships and joint ventures are commonly confused because on paper they may sound somewhat similar, but in reality they are very different. A joint venture is much more limited than a partnership, and the legal implications are not the same either.
What Is a Partnership?
A partnership involves two or more people who are co-owners of a business for profit. Usually, these individuals will share both the profits and losses of the business. They also share equal legal liability for the actions of their partnership, with a few exceptions. For example, California law allows you to create a limited partnership, which means one or more partners have limited liability. In this structure, however, at least one of the partners must be considered a “general partner,” and he or she has no such limitation. Limited partnership is a common arrangement for investors who play no active role in running the company.
There are no formal filing requirements for partnerships in California, but you can register with the state to put your business on record. Most importantly, every partnership should have a partnership agreement that sets out the rights and responsibilities of each party. People often go into business together without one, especially if it is a family-based enterprise, but it is a very good idea to put one in place before you encounter a serious dispute. Businesses change over time and so do the needs of the people who run them. A partnership agreement provides a roadmap for handling your company’s growth, dissolution, management changes, or other bumps in the road.
What Is a Joint Venture?
A joint venture is an agreement between two businesses to engage in a specific project or activity. Unlike a partnership, a joint venture involves a formal contractual agreement. It is a collaboration that is often motivated by market strategy or economic gain. Those who enter a joint venture may be able to:
- Pool resources
- Decrease or divide risk
- Take advantage of unique resources or assets
- Reach larger markets
Like a partnership, businesses that enter into joint ventures are not required to register with the state of California. However, the entire agreement is based on a contract, in which the relationship must be defined explicitly. This includes information such as how profits and losses will be allocated and what type of action could terminate the relationship. Usually, this agreement also will describe any limitations in legal liability that might apply to the venture.
Joint ventures are sometimes centered around making a profit, but they can be used for other purposes as well, such as pooling resources for research and development. This type of agreement often lasts for just a short time, sometimes for a specific duration or until a particular project is complete.
Are you exploring options for your business? Would you like advice from a seasoned professional? Integrated General Counsel can help. Give us a call today to set up an appointment or get more information.
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