What is the difference between joint ventures and partnerships?
Usually, a joint venture is formed only for a single goal or project, whereas a partnership is often formed with the intention of continual business.
Below are three important considerations when deciding which structure is a good fit for your business.
Joint ventures are regulated by the executed joint venture agreement, the common law, and the Corporations Act 2001 (Cth) if any of the parties are a corporation.
Partnerships are governed by State and Territory-based legislation, such as the Partnership Act 1895 in Western Australia.
A joint venture agreement will often state if liability will be shared between the parties or whether each party will be held separately responsible. This is different to a partnership, where each partner is personally liable for the business’ debts and the debts of each business partner.
In a joint venture the actions of each party do not bind other parties without consent, while in a partnership, partners can bind other partners by their actions and owe each other a fiduciary duty.
All parties involved in a joint venture can make and claim their own tax deductions as opposed to a partnership where partners must pay tax on their share of the partnership profit, at their individual tax rate.
It is important to understand the differences discussed above and the advantages and disadvantages of each structure.
Importance of a joint venture agreement
If you are considering commencing a joint venture, it is important to have a joint venture agreement in place to reduce the risk of disputes arising.
Joint venture agreements help to avoid a presumption of a partnership and ensure every party involved understands the venture’s goals, and their rights and obligations regarding the venture.
A joint venture agreement should include:
- the details of the joint venture, including the parties, structure, goals and objectives;
- financial contributions and division of profits and losses between parties;
- the books of account and audit;
- the parties’ obligations and warranties;
- which party owns the intellectual property created by the joint venture;
- any obligations to keep the business of the joint venture confidential;
- a procedure for a party wishing to leave or terminate the agreement; and
- clearly outlined dispute resolution processes.
The above list is not exhaustive, and relevant factors may also differ depending on the type of joint venture agreement and the purpose for which it has been established.
One of our experienced lawyers can help you decide whether a partnership, joint venture, or some other structure, is right for you.
This article is general information only and does not take into account your specific circumstances. You may not rely on it as legal advice and it does not create a solicitor-client relationship between you and Douglas Cheveralls Pty Ltd. If you or someone you know wants more information or needs help or advice, please contact us.