Distinction between Joint Ventures and Partnerships

It so happens many times that individuals and businesses face problems like lack of funds or technical expertise. In such situations, they can either form partnerships or joint ventures with others. And while both these forms of business appear to be similar, there are actually many difference between joint ventures and partnerships. Let’s understand them in detail.

What are Joint Ventures?

Joint ventures are economic activities that two or more persons or entities undertake for specific purposes. These parties are called joint-venturers or co-venturers. Since they are meant to carry on a specific objective, the joint venture generally comes to an end upon fulfillment of this objective. The parties can, however, continue their venture if they wish to.

Parties to a joint venture usually execute an agreement to govern their relationship. This agreement determines their rights and liabilities, obligations, duties, profit/loss sharing ratio, etc. It can even mention the duration of the venture.

What is a Partnership?

A partnership form of business comes into existence when two or more individuals come together for conducting business activities. Such kinds of business entities are called partnership firms and parties in these firms are called partners.

These partners function by sharing rights, liabilities, duties, profits and losses with each other. They determine the terms of their partnership firm using an agreement known as a partnership deed.

Only natural persons, i.e. individuals, can be partners in a firm. Companies and associations of persons cannot become partners. These partners are jointly and severally liable towards each other and towards third parties for acts of the firm.

Difference between Joint Ventures and Partnerships

As we can observe from above, partnerships and joint ventures appear to be similar. They are both created by two or more different persons for carrying out business objectives. They also have common features like an agreement between parties and the sharing of profits and losses.

Despite such similarities, they both have the following differences as well. Let us take a brief look at these stark differences.

1. Parties Involved

Parties in a joint venture are called joint-venturers or co-venturers, while a partnership firm comprises of partners.

2. Duration

Parties generally create joint ventures for achieving specific objectives only. The venture comes to an end after the achievement of these objectives, unless parties agree to continue working together.

Partnerships, on the other hand, do not have such fixed durations. The firm can continue until partners agree to dissolve it or until the happening of certain events.

3. Entity’s Name

Joint ventures don’t require a unique name. Parties can refer to it using their own names. Partnership firms must always have its own unique name to signify its separate identity.

4. Profit/Loss Ascertainment

Since joint ventures have specific purposes, parties can ascertain their profits or losses upon the fulfillment of these objectives. If they continue to work together thereafter, they have to ascertain their profits annually. Partnership firms always ascertain their profits annually.

5. Books of Accounts

Parties to joint ventures need not maintain separate books of accounts for their common activities. One of the co-venturers can maintain all these accounts in its own books. Partnership firms have to mandatorily maintain books of accounts.

6. Closure of Business

Joint venture businesses usually come to an end once the purposes for which they were formed are achieved by the parties.

In the case of partnerships, partners can dissolve their firm with mutual consent. The firm also gets dissolved if a new partner joins or an existing partner leaves or dies.

Solved Questions for You

Question: Consider the following characteristics and determine which apply to joint ventures and partnerships.

1. Parties can choose their own profit sharing ratio
2. Dissolution of the entity after fulfillment of parties’ objectives
3. There must be at least two parties
4. Economic or profit motives must exist
5. Registration under a unique name

Answer: The answers are as below,

1. This applies to both, joint ventures and partnerships.
2. This rule applies to joint ventures only.
3. Both, partnerships and joint ventures must have two or more parties.
4. This rule applies to partnerships as well as joint ventures.
5. This rule applies to partnership firms. Joint ventures need not have a unique name.