Business members are often referred to as co-venturers or partners based on a set number of factors. Many use these terms synonymously but they mean different from legal perspectives. This article will measure the cope of a partnership and a JV to draw a conclusion.
Novice people are often confused between a partnership and a joint venture as they conclude both the terms convey a similar meaning. The case is wrong particularly when we deal with commercial space. The differences, however, may appear to be negligible but their legal consequences tend to vary considerably and cast a notable impact on business. In this blog, you’ll learn about the Difference Between Joint Venture and Partnership.
Key Difference Between Joint Venture and Partnership
By now most of you must be wondering what the actual difference between a joint venture and a partnership is. In layman’s terms, both are presumably the same concept. This is probably due to the involvement nature of multiple business owners, two business ideas incorporate multiple parties who simultaneously take care of a common project.
Despite this similarity, there remain certain diversions that we are going to mention in the section below:
- Parties involved: A partnership firm registration is decided among multiple persons (two or more). They constitute a legally apprehended tie-up promising to manage the business with collaborative efforts. However in a joint venture generally two or more corporate entities come together, this may include established firms or even governmental agencies.
- The Intent: The most vital factor that distinguishes both the highlighted concepts happens to be the purpose of collaboration. A partnership’s objective happens to be beyond a specific goal or project. The business partners focus on operating a venture for longer periods and decide on sharing the generated profit as per their respective investments.
Joint ventures are planned to achieve a particular agenda. Each corporate entity puts forward its share to accomplish a predetermined project. The list of achievable goals may or may not incorporate profit in a joint venture scheme at all.
Let us understand with an example, we often witness researchers and businessmen enter into a JV scheme to invent new technological equipment, and monetary profit is not given importance in such cases.
- The Procedure of Designing: Partnership contracts or agreements form the basis of business partnerships where both parties conduct meetings before deciding upon the terms of the time-limited contract. The formal agreement declares the regulations which will be exercised to control the course of operations; this covers policies related to profit and loss shares, termination clauses, the proportion of control possessed by each business partner, etc.
Joint ventures do not necessarily depend on signing mutual agreements. Even if there is an agreement, it lasts for a shorter duration and the terms are set keeping in mind particulars that will be required to complete a specific project, the scope is limited.
- Duration of Application: Partnerships usually involve a lifetime affair. These contracts hold the potential to last infinitely. On the other hand, JVs cover a short period of project lifetimes. Joint ventures are not designed to be active for long, businesses avail this scheme to fulfil individual goals that would have been harder to achieve without external help.
Let us again refer to the example of Tata Sons and Singapore Airlines. The former party requires the management expertise of the latter airline merchant who has already set an example of excellence in the aviation sector. Similarly, the SIA will receive more aeroplanes and traffic to offer their hospitality services which in turn will expand their business, promote revenue generation and enhance their goodwill.
- Scope of Business: JVs offer limited scope and opportunities as these plans are drafted to accomplish small-sized projects. Also, the duration of collaboration is shorter in joint ventures.
On the contrary, partnerships can be established on a huge note for example Starbucks has partnered with the famous bookseller – Barnes & Noble where every such bookstore is bound to be accompanied by a Starbucks outlet.
This collaborative effort is not time-bound; also both companies enjoy considerable fortune due to this concept as the deadly combination of books and snacks attracts many consumers to each of the outlets where they unconsciously engage themselves in greater purchase volumes.
- Accountability: At times when partnership terms do not work out or there is an insurgence of moral hazards, the victimized party suffers the consequences resulting from the fault.
Although partnership firms are designed for the long run still the clauses protect the interests of the firm who have unwittingly accepted a deal before a disaster in business. In joint ventures, either of the parties is held guilty by the law in cases of criminal and civil offences. In this regard, joint ventures happen to be riskier.
Conclusion
Vakilsearch intends to help you with each significant business decision. This article will be fruitful for all who are on the verge of entering a business partnership, or JV. Legal consultation with veteran advocates is a mandate as per our experts’ recommendations. also understand the difference between joint venture and partnership.
Consider reading related blogs posted on Vakilsearch to grab minute concepts that are likely to assist you while making major risky decisions. Our bench of hand-picked legal writers will guide with on particular topics that you must refer to before considering changes in your business agenda.
FAQs
Definition of Joint Venture
A joint venture is a business arrangement where two or more parties come together to undertake a specific project or venture for a defined period. Each party contributes resources and shares profits or losses while maintaining a degree of autonomy.
Definition of Partnership
A partnership is a formal legal arrangement where two or more individuals or entities collaborate to manage and operate a business with shared responsibilities, profits and liabilities. Partnerships can take various forms, such as general partnerships or limited partnerships.
Is a joint venture also known as a partnership?
While both joint ventures and partnerships involve collaboration, they are distinct legal structures. In a partnership, parties typically work together to run an ongoing business, while a joint venture is usually formed for a specific project or limited duration.
What is the difference between joint venture and collaboration?
A joint venture is a specific legal entity created for a defined project or business endeavour, often involving shared ownership and control. Collaboration is a broader term that refers to any cooperative effort between parties, which may or may not involve the creation of a separate legal entity like in a joint venture.
What are the 3 types of joint venture?
The three common types of joint ventures are equity joint ventures, contractual joint ventures, and cooperative joint ventures. Equity joint ventures involve shared ownership, contractual joint ventures are based on contractual agreements and cooperative joint ventures require collaboration without formal ownership.
