Distinction Between Joint Venture and Partnerships
A joint venture is a contractual agreement that joins together two or more parties for the purpose of executing a particular business undertaking. All parties agree to share the profit and loss of the enterprise. A joint venture is defined as an association of two or more persons formed to carry out a single business enterprise for profit in which they combine their property, money, efforts, skill, and knowledge[i].
The contributions of the respective parties need not be equal or of the same character. However, there must be some contribution by each co-adventurer that promotes the enterprise[ii]. A joint adventure is not created by operation of law[iii]. The existence of a joint venture gives rise to a fiduciary or confidential relationship[iv]. However, the existence of a joint venture is a question of fact that has to be decided according to the facts and circumstances of each case[v].
The elements of a joint venture include[vi]:
- A community of interest in the performance of a common purpose;
- Joint control or right of control;
- A joint proprietary interest in the subject matter;
- A right to share in the profits;
- A duty to share in the losses which may be sustained.
Whereas, a partnership is defined as an association of two or more persons to carry on as co-owners of a single business enterprise for profit[vii]. Generally, there exists no essential difference between a joint venture and a partnership. It can be seen that a joint venture is considered as a form of partnership.
However, a joint venture and a partnership are two separate entities, different from each other:
- A joint venture involves two or more companies joining together in business, whereas in a partnership, it is individuals who join together for a combined venture.
- A joint venture can be described as a contractual arrangement between two companies that aims to undertake a specific task. Whereas, a partnership involves an agreement between two parties wherein they agree to share the profits as well as any loss incurred.
- In a partnership, persons involved are co-owners of a business venture and their aim is making a profit. But in a joint venture, it is not just profit that binds the parties together. Joint ventures can be formed for specific purposes. Normally the companies engage in joint ventures for undertaking certain ventures like research and development which will be expensive in nature and impossible to take the same individually.
- A partnership will last for many years until the parties involved have no differences. While a joint venture company will last for only a limited period until their goal is achieved.
- The members in a partnership can claim a capital cost allowance as per the partnership rules. Whereas, joint ventures can use as much or as little of the capital cost allowance.
- In a partnership, members cannot act according to their wishes because they do not have any individual identity. However, a member of a joint venture can retain the identity of his/her firm or property.
- Although a joint venture is very similar to a partnership, a joint venture is generally more limited in scope and duration.
- A joint venture is generally considered to be a partnership for a single transaction. Similarly, a joint venture is a less formal relationship than a partnership.
- The rights and liabilities of joint venturers are governed by the principles applicable to partnerships.
- Joint venturers can be held jointly and severally liable for one another’s wrongful acts, but a joint venture must have the elements of a partnership. Whereas, if a criminal act is committed through a partnership, the culpable members of the partnership are held criminally responsible, rather than the partnership itself[viii].
[i] Wah Chang Smelting & Ref. Co. of Am. v. Cleveland Tungsten, 1996 Del. Ch. LEXIS 102 (Del. Ch. Aug. 19, 1996).
[ii] Southeastern Shelter Corp. v. Btu, Inc., 154 N.C. App. 321 (N.C. Ct. App. 2002).
[iii] Sheppard v. Carey, 254 A.2d 260 (Del. Ch. 1969).
[iv] Celador Int’l, Ltd. v. Walt Disney Co., 347 F. Supp. 2d 846 (C.D. Cal. 2004).
[v] Royer v. V.P. Pierret Constr. Co., 834 So. 2d 1078 (La.App. 3 Cir. Oct. 28, 2002).
[vi]Wah Chang Smelting & Ref. Co. of Am. v. Cleveland Tungsten, 1996 Del. Ch. LEXIS 102 (Del. Ch. Aug. 19, 1996).
[vii] Binkley v. Palmer, 10 S.W.3d 166 (Mo. Ct. App. 1999).
[viii] In re Jones, 72 B.R. 25 (Bankr. C.D. Cal. 1987).