Joint Venture vs Partnership
The purpose of a partnership is not limited to a single project or to a single goal. The object of partnership is oriented towards the running of the business for the purpose of a long-term enterprise and for making a profit in the enterprise. Joint ventures, on the other hand, are strategized to accomplish a specified goal. In a JV, each party contributes their share to the agreed-upon task.
A joint venture is a contractual arrangement between the two or more entities which aims to undertake a specific task. A partnership whereas, involves an agreement between the two or more parties where they together agree to share the profits as well as share any loss which might have incurred in a single venture.
What is a Joint Venture and Partnership?
Joint Venture
A joint venture (JV) is a type of business arrangement where two or more parties agree to put together their resources for the purpose of accomplishing a specific task. This is a task for a new project or any other business activity which might be a goal for them. In JV type of business, the partners are responsible for all the profits.
Partnership
A partnership is a formal arrangement between two or more parties who manage and operate the business and they share their own profits in profit sharing ratio. Partners may distribute the losses and profits equally or in a distinct ratio. Some partnership business restricts the liability of the partners to limited liability.
Points of Difference Between Joint Venture and Partnership
Who is in the Business?
A partnership is made up of persons, two or more, who is legally recognized for the purpose of operating this business.
A joint venture, on the other hand, can be individuals or even entities who can come together to form a business organization.
The Purpose of the Business Style
Both the partnerships and joint ventures are different in their style. A partnership’s purpose is not restricted to a single project or goal, rather, partnerships are formed for earning long-term profit.
Joint ventures are designed to accomplish only a specific goal, which might be a single project.
How are Both Structured?
Partnerships are formed with a partnership agreement or a contract between the individuals who make up the partnership.
Joint ventures, not necessarily have an agreement in the first place. Even, if there is an agreement, it is only for a short-term and it is a very specific contract.
How Long Does the Business Exist?
Partnerships are designed to last for eternity while in business. They can run to an infinite term.
In contrast to this, the joint ventures are meant only for a short-term project lifetime.
How Big is the Size and Scope of the business?
Joint ventures are limited in scope and their accomplishment is also limited. Partnerships, in contrast, can be huge in terms of both scope and size.
Who Remains Accountable?
When a partnership goes wrong and causes a moral hazard, only the party who has committed the wrong faces with fault.
In the case of a joint venture, both the parties are seen at fault in the case of a moral hazard or criminal wrongdoing. Accountability increases greatly which makes the joint ventures riskier in the short-term.
FAQs on Joint Ventures vs. Partnerships: Key Differences
1. What is the key difference between a joint venture and a partnership?
The primary difference lies in their scope and duration. A partnership is a long-term business relationship intended to operate continuously for a wide range of activities. In contrast, a joint venture is a temporary arrangement formed by two or more parties to accomplish a specific task, project, or business activity. Once the objective is completed, the joint venture is typically dissolved.
2. What are the main points of distinction between a joint venture and a partnership?
The main points of difference between a joint venture and a partnership include:
Objective: A partnership is formed to run a business on an ongoing basis, whereas a joint venture is established for a specific, time-bound purpose.
Duration: Partnerships have a continuous existence, while joint ventures have a limited and defined lifespan that ends with the project's completion.
Members: The parties in a partnership are called 'partners', while in a joint venture, they are known as 'co-venturers'.
Governing Act: Partnerships in India are governed by the Indian Partnership Act, 1932. Joint ventures do not have a specific governing act and are based on the agreement between co-venturers.
Business Name: A partnership must operate under a specific firm name. A joint venture may not require a separate name, as the co-venturers can operate under their existing business names.
3. Can you give a simple example to illustrate the difference between a joint venture and a partnership?
Certainly. Imagine two construction companies, A and B, join forces specifically to build a new airport. This is a joint venture; their collaboration will likely end once the airport is complete. In contrast, if two accountants, C and D, decide to open a firm together to offer accounting services to the public indefinitely, they have formed a partnership. Their business is ongoing and not tied to a single project.
4. Why would businesses choose to form a joint venture instead of a long-term partnership?
Businesses often prefer a joint venture over a partnership for several strategic reasons. A joint venture allows companies to:
Collaborate on a specific project without merging their entire operations.
Share significant risks and costs associated with a large, capital-intensive project.
Access new markets, technology, or expertise for a limited time.
Maintain their individual identities and business autonomy outside the scope of the venture.
It offers a flexible way to achieve a mutual goal with a defined endpoint, reducing long-term commitment.
5. How does the Indian Partnership Act, 1932 apply differently to partnerships and joint ventures?
The Indian Partnership Act, 1932, provides a detailed legal framework that directly governs the formation, operation, and dissolution of partnership firms. It defines the rights, duties, and liabilities of partners. On the other hand, there is no separate statute for joint ventures in India. A joint venture is governed primarily by the terms of the specific agreement or contract signed between the co-venturers. While some principles of partnership law may be applied by courts if a dispute arises, it is not automatically regulated by the Act.
6. What happens to the business structure after its objective is met in a joint venture versus a partnership?
Once the specific objective of a joint venture is achieved, the arrangement typically comes to an end, and the venture is dissolved. The co-venturers share the final profits or losses and then go their separate ways. A partnership, however, does not have a pre-defined endpoint. It is designed for continuity and will continue to operate indefinitely unless the partners mutually decide to dissolve it or it is dissolved due to events like the death or insolvency of a partner.
7. Despite their differences, are there any similarities between a joint venture and a partnership?
Yes, there are several fundamental similarities. Both business structures involve:
An agreement between two or more parties to collaborate.
A common goal of earning profit.
The pooling of resources, such as capital, skills, and expertise.
Shared control and management over the business activities as per the agreement.
