Are you planning on conducting business or starting a new business partner? You may confuse your arrangement as a joint venture or partnership. However, these two arrangements are different and have their own sets of pros and cons.
Before proceeding with your business, it is best to understand what these arrangements entail and whether one is better for your business over the other. Doing so can be complicated, especially if you are unfamiliar with commercial law. It is best to get a professional’s legal and financial advice in this matter.
This article will run you through the differences between a joint venture and a business partnership.
Understanding Joint Venture Agreements
Let’s start by understanding what a joint venture is. A joint venture is an agreement between two or more parties who contribute money and resources to a business venture or strategic goal. Although they work together, these businesses remain separate.
Some joint venture agreement projects include:
- Research and development
- Mining
- Transportation and travel agreements
- Publishing
- Property development
The profits from these ventures are divided between the parties by the end of the project. However, each party is responsible for any debts they incur during the arrangement. This is governed by the written joint venture agreement the parties have signed.
You can have a joint venture legal entity or contractual joint venture, depending on your contract.
Benefits of Joint Ventures
Most corporations use joint ventures as part of their expansion strategy as it has various benefits, which include:
- Easier growth without having to borrow money or seek outside investment
- The capacity to develop new products and services the company may not be able to produce by itself
- Improved access to staff and resources
- Having a temporary commitment with a party you trust
Downsides of Joint Ventures
Even though a joint venture is ideal for growth, it can also be dangerous if not handled properly. Here are some things to consider:
- Finding people that you trust to enter into an agreement
- Uncertainty of the success of the collaborative work
- Potential lack of commitment or conflict of interest between the parties
Understanding Partnership Agreements
Unlike a temporary joint venture, a partnership is formed when two or more people agree to have an ongoing business relationship. These partners work together to run the business. However, unlike companies and joint ventures, partnerships are not separate legal entities.
The partners are jointly responsible for the business. Should you have a partner unable to pay their debts, all the partners are liable.
Benefits of Partnerships
Businesses may go for partnerships because of these benefits:
- Lower start-up costs and easier establishment
- Less external regulations compared to companies
- You can easily change the business structure
- Option for income splitting
Downsides of Partnerships
Before going for a partnership, you may want to consider the following:
- Joint and several liabilities for other partners’ debts
- Liability for any actions and omissions of other partners
- Shared profits
- Unlimited liability means that your personal assets and finances may be used to pay debts of the partnership
Conclusion
There are advantages and disadvantages to both partnerships and joint venture agreements. If you are not familiar with commercial law, it is best to seek the help of legal advice before signing that contract. Commercial lawyers can help you understand the advantages and liabilities of choosing either of these agreements for your business.
Are you in need of commercial contract lawyers in Brisbane? GLG Legal has the experts to help you choose the best options for your business interests. Contact us today to learn more!
