Joint Venture vs. Partnership

Introduction

Have you ever heard the proverb – ‘Two heads are better than one’? It is a phrase from the Bible. The famous author of The Narnia Chronicles, C. S. Lewis, used it in his works. He justifies it by saying that two heads are better because while they might not both be right, they are both not likely to be wrong. Collaborations and teamwork are not new. There were most likely instances in school projects where some of the projects were team projects with the whole shebang – a team leader, a coordinator, an eclectic artist, a science expert, and a goof. Yes, most teams, definitely featured at least one goof. Regardless, the team was evaluated for their collective effort and a grade was bestowed individually. To obtain the highest scores the team would have to work in perfect harmony like an orchestra.

Perfect harmonies, though, are hard and rare to come by. Countless hours of practice are required to reach the desired synchrony. But with dedication and determination, the result is bliss. Such collaborations are fruitful and beneficial to both the participants and the audience. Other examples of fruitful collaborations are the Avengers in the Marvel Universe and the Fantastic Four, also in the Marvel Universe. Or even, Batman and Robin, from the DC Universe. Granted, these collaborations are fictional but you can’t deny they aren’t fruitful. Superheroes fight crime and save the world by working in sync. Hence, they stipulate that two heads are better than one.

In the real world of business though, we would probably have Robin scratching his head and Batman AKA Bruce Wayne working with someone else. Probably Lucius Fox, his technical advisor. Collaborations in business work differently. They have the same advantages of a regular collaboration – like increased input of ideas, more resources, new criticisms etc. all of which benefit the people involved and the audience receiving the ideas. There are two prime types of collaborations that we most likely encounter in business - joint ventures and partnerships. While they sound similar in function, they work differently. A joint venture is a rather temporary venture that ends once the business is concluded while a partnership is not limited to just one venture. More differences separate the two business entities.

Differences Between Joint Venture and Partnership in a Tabular Form

PARAMETER	JOINT VENTURE	PARTNERSHIP
Definition	A joint venture is a business entity that is formed by two or more people for a limited period and for a specific purpose.	A partnership is a business entity that is arranged by two or more people who decide to share the profits and losses.
Business is carried on by	Co-venturers	Partners
Status of a Minor	A minor cannot take part in a venture.	A minor can become a partner in a partnership.
Basis of accounting	Liquidation	Going concerns accounting
Trade name	There is no trade name in a joint venture.	There is a trading name in a partnership.
Ascertainment of profit	The profits are ascertained at the end of the venture or on an interim basis.	The profits are ascertained annually.
Maintenance of separate records	There is no need to maintain separate records.	There is a necessity to maintain separate records.
Identity	Co-venturers can retain the identity of their firm or business.	Partners cannot keep individual identities as they become a part of a team.

What is a Joint Venture?

A joint venture is a business proposition of sorts. It is an agreement between two or more parties where they decide to share the profits and losses of a business idea. Despite working together, the business parties remain separate. The agreement is based on a written or an oral agreement between the parties and they decide to share their resources, expertise, property, skills etc., which might benefit the venture. To determine the precise nature of the collaboration and contribution of the parties involved, a clear and concise agreement must be drawn before the beginning of the venture.

The main elements that are usually involved in a joint venture are as follows:

A common interest between the parties for the joint venture.
A right of each member of the venture to be able to direct and govern the policy of conduct of other party members.
A right to the joint control and management of the assets.
A promise to share the profits and the losses of the venture.

Some of the joint ventures occur in the areas of publishing, mining, property development, transport, research and development etc. The profits reaped from such ventures are divided amongst the members at the end of the venture. In case of debts incurred during the venture, those are also shared by the members.

There are many benefits of a joint venture. They are as follows:

The joint venture can gain profits without the need for investment from other companies or the need to borrow money. This gives scope for the growth of the business.
The joint venture allows the development of new services and products that would not have been possible for a company to develop on its own.
There is improved access to the staff and resources.
The commitment is temporary with a party that can be trusted.

Since there are two sides to a coin, there are also downsides to having a joint venture. They are as follows:

It can be hard to find the people that can be trusted to form a joint venture.
There is a level of uncertainty about the profits due to the collaboration.
There might be a potential lack of commitment between the parties or even a conflict of interest.

Since the joint venture is a business venture of a limited period, it is also known as a temporary partnership and the partners are known as co-venturers. The accounting they appoint for their ventures is of liquidation, where they convert their assets into cash. Profits and losses are split between the co-venturers according to a specified ratio.

Depending upon the period, the profits and losses are determined as follows:

For a joint venture of short duration: at the end of the venture.
For a joint venture of long duration: on an interim basis.

What is a Partnership?

A partnership is a business entity formed by two or more parties who form the business to make profits from their ideas. It is a combined effort by the members of the partners and they are essentially a team. In simpler terms, the partners run a business together. Together, the partners forming a business are known as a firm.

The main elements in the formation of a partnership are as follows:

It is an association of two or more individuals.
A mutual agreement is reached between these partners to run a business.
Business can be carried out by all the partners or by a single partner on behalf of the other partners.
All the partners must share the profits and losses on an agreed-upon ratio.
There are unlimited liabilities shared.

Unlike the co-venturers in the joint venture, the partners are not legally separate entities in a partnership. They share a joint identity with other partners. They are responsible for running the business and sharing the profits and losses. If a partner falls into debt, the other partners become liable.

There are many benefits to a partnership. They are as follows:

There are lower start-up costs. The establishment of the business is easy.
There are lesser external regulations to comply with when compared to companies.
The business structures can be easily modified depending on the preferences of the partners.
The partners have an option of splitting the income.

Like joint ventures, and pros and cons, partnerships also have downsides. The drawbacks are as follows:

Since the business is combined, there is a liability to be shared in case of the other partner’s or partners’ debts.
One is also liable for the other partner’s or partners’ actions and omissions.
The profits are shared which might decrease one’s shares of profits.
Unlimited liability will cause one’s assets to be used to pay another partner’s debts.

In a partnership firm, there can be a minimum of two members. The maximum number of members is ten for banking businesses and twenty for other kinds of businesses. The form of accounting is of the going concern concept where the company assumes to have profits to stay afloat for the foreseeable future.

Differences Between Joint Venture and Partnership in Points

Following are the main differences between a joint venture and a partnership:

A joint venture is a business entity that has two or more people who form the business for a limited period for a specific purpose whereas a partnership is a business entity that is formed by two or more people who decide to share the profits and losses of the business.
The business in a joint venture is carried on by co-venturers while the business in a partnership is carried on by partners.
A minor cannot partake in a joint venture but in a partnership, a minor can be a partner.
The accounting in a joint venture is by liquidation while it is by going concerns in a partnership.
In a joint venture, there is no trade name involved whereas in a partnership there is a trading name involved.
In a joint venture, the profits are ascertained at the end of the venture or after an interim period, as decided by the co-venturers at the start of the venture. In a partnership, the profits are ascertained annually.
In a joint venture, there is no need to maintain separate records but, in a partnership, there is an absolute necessity to keep discrete records.
In a joint venture, the members can retain their identity or the identity of their respective firms. While, in a partnership, the identity belongs to the team. The partners cannot keep their identities.

Conclusion

Joint ventures and partnerships are collaborations in business that share the objective to make a business venture thrive. They are formed to achieve profits. A joint venture is formed by two or more parties or co-venturers. It is of a limited period and can have a specific goal for example – research and development. In a joint venture, the co-venturers can retain their identity whilst sharing the profits and losses as per a specified ratio in the business contract. The profits are determined either at the end of the venture if it’s a short venture or on an interim basis if it’s a long venture. One of the most important requirements of forming a joint venture is trusting the other parties involved. The nature of the collaboration and the contributions must also be regarded while entering a joint venture.

A partnership is also a kind of business collaboration. It is a business entity where two or more parties combine to form a business with the goal of profit. The partners share the profits and losses on an annual basis. In partnerships, the partners also share unlimited liability i.e. the partners share full legal responsibility for the debt owed. The partners are team members and have a collective identity. A partnership can last for many years unless individual differences develop during the partnership. Thus, partnerships and joint ventures are ways to make expand businesses and build upon new ideas. And it only goes on to show that two heads are indeed better than one. Even though the losses and debts (in partnerships) are also shared, one could argue that the profits reaped benefit more than just the co-venturers or the partners. Think about it, the Avengers, their team efforts not only make them powerful and successful but also save humanity. Isn’t that just glorious! Having a horde of superheroes working in perfect synchrony to rescue you from an alien threat albeit a massively fictional layout is a pleasant way to spend time and a fun way to learn about collaborations.

References

Introduction
Joint Venture vs. Partnership
Differences Between Joint Venture and Partnership in a Tabular Form
What is a Joint Venture?
What is a Partnership?
Differences Between Joint Venture and Partnership in Points
References

Difference Between Joint Venture and Partnership

Introduction