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The way a person chooses to structure their business will play a part in determining its operation and the advantages and disadvantages of its structure. There are various ways to structure a business, though this decision should depend on your business goals. Sometimes businesses will team up with other businesses to expand their market. They cooperate in different regions or because one business provides input and the other produces the output. There are two main ways that you can structure this cooperation, as a joint venture or a partnership. This article will explain the difference between a joint venture and a partnership and which is best for your business.

What Is a Joint Venture?

A joint venture is a situation where two businesses come together to work towards a specific task. They come together because it is beneficial for both businesses. Joint ventures are popular as it allows businesses to contribute towards a particular good or service to make it more valuable. When businesses enter into a joint venture, they retain their independence but work together towards a common goal. 

Additionally, a joint venture agreement governs the joint venture. It needs to contain certain clauses to ensure both parties can rely on it. Some clauses that you should incorporate into your joint venture agreement are the:

For example, a business may enter into a joint venture with another business based in a different part of the world. Business A will send their products to Business B, who can then sell them to their client base. In addition, business B can choose to add to the product to make it more suited for their clientele. The joint venture means that Business A does not have to expand its operations but can still tap into new markets. 

What Is a Partnership?

On the other hand, a partnership is a more formal agreement where two or more people come together to accomplish a specific goal. The parties in a partnership are not independent of each other. Instead, they are part of the same business. Partners can have an equal share in the business, or one partner could have more than the other. The main advantage is that both parties have skin in the game, meaning there is a higher chance of success.

However, a partnership allows for joint liability. This means that if something goes wrong in the business, both partners can be liable for the decision of one party. Additionally, it is not a simple process to exit the partnership. To do so, either party will need to agree to terminate the partnership, or one party must sell their stake in the business. 

Joint Venture vs Partnership

The main difference between a joint venture and a partnership is that the former allows businesses to be separate whilst bringing their resources together for a common purpose. Whereas in a partnership, the parties come together to form an entity that each party co-owns. 

Likewise, it is easier to leave a joint venture agreement than a partnership agreement as you remain the sole owner of all your assets. You also have less liability under a joint venture agreement because you are only liable for any contract breaches you commit relating to the joint venture. However, if you are in a partnership, you are liable for any breach or issue you or your partner cause. 

Which Is Better?

There is no correct answer regarding which business structure is better. Both a joint venture and a partnership have their benefits depending on the task you are trying to accomplish. However, it is better to enter into a joint venture if you want to cooperate on a short term project. Conversely, a partnership may be a better option when dealing with something requiring a result or a project that requires a significant amount of time. If you can fully commit your resources and time to a project, a partnership may suit this. 

Key Takeaways

Both a joint venture and a partnership have their benefits depending on the type of project you are undertaking. A joint venture gives your business the flexibility to keep its independence and the ability to pull out of the project if need be. On the other hand, a partnership requires both parties to commit to the project entirely. While this can be beneficial for the project, it may cause liability issues as both parties are liable for the other partner’s actions.  

For legal assistance regarding how to best structure your business project, contact LegalVision’s business lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Do I have to have an agreement for both business structures?

Yes, you must have an agreement so that both parties are legally protected, and the partnership or joint venture can be enforced.

Can I change my business structure once I have chosen one?

Yes, but you must follow the procedure to dissolve your previous business structure before forming a new one. 

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