8 Differences Between Joint Venture and Partnership

Differences Between Joint Venture and Partnership: Joint venture and partnership are alike in their nature but they are not the same. Both strategies are related to business ventures. Joint venture is a cooperative partnership between two individuals or businesses and arising from contractual arrangement in which risks and profits are shared. In a joint venture, the independence of the individuals or companies involved is not extinguished.

Distinction Between Joint Venture and Partnerships
Distinction Between Joint Venture and Partnerships

The organization may be for a long, medium or shot-term period of time. What is most important is that joint venture is formulated for the performance of a specific task. The members are governed and motivated by the same policies and goals. Joint venture, just like partnership is a business strategy. It is focused and actually aids in the growth and productivity of businesses.

Profit-making is also its utmost concern, though not always primary. In a joint venture, the two or more participants involved combines and contributes efforts and assets in order to attain a specific business purpose. Joint venture does not run in perpetuity; it has limited time duration. When a joint venture is formed, it represents a newly created business enterprise. However, the participants of the joint venture continue to exist as separate entities. The participating entities to a joint venture may choose to organize it as a corporation, partnership or any other business type.

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Characteristics of a Joint Venture

a. Contribution: Joint venture is characterized by combination and contribution of efforts, capital, assets and other resources, skill, knowledge, and mutual undertaking by the co-venturers.

b. Defined Purpose: Joint venture is characterized by the coming together of two or more individuals or entities who share a common purpose. The prupose is a specific and well defined one. Upon the attainment of the purpose, a joint venture is free to cease.

c. Mutual Control and Management: Every participant in a joint venture reserves the right to be involved in the control and management of the business. The right is inherent and is rooted in their mutual undertaking, purpose and contributions.

d. Right to share in the property: Just like participants are obligated to contribute, they are equally entitled to a share in the property of the enterprise. The right to entitled to a share extends to the proceeds and profits of the enterprise.

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Advantages of Joint Venture

a. Strength and Weaknesses: The two or more individuals or entities forming a joint venture have their different areas of strengths and weaknesses. Therefore, when a joint venture is created, the two separate entities forming the joint venture plays a complementary role in balancing and boosting their weaknesses and strengths to become stronger for either or both of the entities.

b. Flexibility: A joint venture does not run in perpetuity. The enterprise is terminated upon the attainment of the purpose for which it was created. Moreso, participants are not required to cease the operation of their independent enterprise.

Participants still exercise management and control over the joint enterprise and they are still not prevented from exercising control and management over their own business. Their independent identity is not extinguished by creating a joint venture, and they can reserve the right to opt out, and where the purpose of the joint venture has been attained, they can return to their various businesses.

c. Sharing of Risk: In a joint venture, business risks are shared amongst the participating entities rather than being borne by one party or entity.

What is the difference between a Partnership and a Joint Venture?
What’s the Difference Between Joint Ventures & Partnerships?

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Disadvantages of Joint Venture

a. Interests: Since joint venture involves more than one entity, there is likelihood for conflict of interests to ensue in the long run.

b. Decision Making: The governing system and process in a joint venture is liable to be rigorous and boisterous

c. Risks and profits are shared by the participants

d. The level of expertise and contribution may be unreliable and unequal respectively.

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Meaning of Partnership

Partnership is the association of two or more people for the purpose of conducting business and with the end point of making profit. Both partnership and joint venture are business of common purpose involving two or more persons of which profit-making is an element.

Meaning and Similarities between joint venture and partnership
Meaning and Similarities between joint venture and partnership

In a partnership also, resources, ideas and skills are joined together, and profits are also shared. Partnership may become a preferable alternative type of business where capital is inadequate foe sole proprietorship. It is also necessitated by the need to expand a business and manage the risks and operation of business more effectively.

There are two types of partner; General partner and Limited partner. For general partner; all the partners are unlimitedly liable for the debts and risks of the organization. Members are also involved in the day to day management and operation of the partnership. For limited partner; members are liable only to the extent of their investment. Members are free not to be involved in the day to day operation of the partnership but they are entitled to a share in the profits.

Joint Venture vs. Partnership
Joint Venture vs. Partnership

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Advantages of Partnership

a. Easy Establishment: Establishment of a partnership does not have a rigorous process. All that is needed is the formation of an agreement deed by the partners.

b. Available Resources: In a partnership, two or more entities bring their resources to form the business organization. This provides adequate resources for the operation of the business. Additional members are also allowed to join by amending the formation deed.

c. Tax: Partners in a partnership are only taxed once from their personal income tax

d. Varieties of Ideas and Experience: partnership involves more than two persons. Their various ideas and exposure is an advantage for the growth and management of the business.

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Disadvantages Of Partnership

a. Continuity not guaranteed: Partnership is liable to be terminated upon the death of the partners.

b. Liability: The partners are held personally liable for the risks and debts incurred in furtherance of the business.

c. Interests: Conflict of interests can also affect decision making process and outcome in a partnership.

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Distinction Between Joint Venture and Partnerships
Distinction Between Joint Venture and Partnerships

Differences Between Joint Venture And Partnership

From the foregoing it is perceived that joint venture and partnership have some similarities, although with clear differences.

Here are the differences:

1. Duration: although both joint venture and partnership may not run in perpetuity, the times duration for the operation of a joint venture is determinable. Joint venture runs for a limited period upon the attainment of the specific purpose, whereas in a partnership, the business continues to run as long as it is prosperous. It can only be dissolved upon the death of members.

2. Members’ Nomenclature: members in a partnership arrangement are known as partners while members in a joint venture are known as co-venturers.

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3. Membership Age Limitation: In a joint venture, membership is only limited to adults, whereas in a partnership, minors can become a member, bear risks and reap profits from the partnership.

4. Calculation of Profits: In a joint venture, profits are calculated upon the attainment of the specific purpose or as undertaken by the parties to the joint venture. For partnership, profits are calculated annually.

5. Profit-making: Although making of profits is incidental to the establishment of joint venture, it is not necessarily for profit-making. For partnership however, its objective is primarily profit-making.

6. Joint venture is usually formed by two or more companies or corporate bodies, whereas for partnership, it is usually constituted by individuals.

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7. Formation of partnership requires the preparation of a partnership deed or partnership agreement spelling out the mode of operation and terms of the partnership. This is not necessarily required in a joint venture.

8. Identity: In a joint venture, the identity of the co-venturers is not diminished. They still bear their separate identities, for instance, – “Volvo-Uber”. In a partnership, however, the identity of the partners is not separate from the partnership. It is only the partnership enterprise that has an identity.

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Both joint venture and partnership are business strategies that foster the expansion and growth of a business. There are some peculiarities in policies and benefits obtainable from the both strategies. It is therefore, very important for one to be abreast with the policies in order to know which is most suitable for one’s business and purpose.