Business Basics for Entrepreneurs: Joint Ventures vs. Partnerships

When starting a small business, many people are not sure what type of legal structure they should pursue. If you are starting a business with one or more other people, you may be considering a partnership or a joint venture. At first glance, these two options may appear to be quite similar, but in reality, they should not be used for the same arrangements. Take a moment to learn more about these two options so you can decide which one is right for you.

What is a Partnership?

When it comes to starting a business, a partnership is a legal structure where two or more people agree to jointly own a business for profit. The legal setup is quite simple, with each party agreeing to split the ownership and the profits that may be generated. This type of business is intended to continue in place indefinitely, and can grow and evolve significantly over time.

What is a Joint Venture?

A joint venture is also an arrangement where two or more people agree to come together to engage in some type of business with the intent of making a profit. With a joint venture, however, it is confined to one well-defined project. This project can continue for an extended period of time, but generally would not be able to evolve and adapt based on the desires of the owners. In many cases, two existing businesses (often partnerships) will come together to conduct some specific business task that they could not do on their own. A large-scale example of this is when Sony Corporation and Ericsson came together to make mobile phones. They created a joint venture known as Sony-Ericsson.

Things to Consider

In many cases, simply understanding the above-mentioned differences between these two legal structures will be enough to decide which is right for you. There are, however, other things that you will want to consider when weighing your options:

  • Taxes – Partnerships are taxed with “pass-through” taxes, which means each partner will simply claim their profits on their individual returns. Joint ventures can be taxed either as a partnership or a corporation, giving you more options.
  • Liability – The legal liability of those engaged in a partnership are going to be liable for their own actions, those of the other partners, and the actions of the employees. With a joint venture, the liability can be lessened by creating a limited liability company.
  • Timeline – Partnerships are intended to go on indefinitely unless the partners choose to restructure in some way. Joint ventures are typically used for single projects and may even have set end dates.

Which One is Right for You?

Deciding which of these options is right for your particular situation can be difficult. As experienced business attorneys, we can analyze your current situation and your future goals to help you figure out what is the best legal structure for your business. Contact us to schedule a consultation today.

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