A joint venture is a contractual agreement between two or more parties to undertake a particular business task. A joint venture is normally taken by businesses when a business opportunity arises and a single business cannot exploit it due to lack of financial and/or technical resources. So, the businesses combine their expertise, knowledge and resources and share profits based on a predetermined agreement.
Partnership is a mutual contract between well-informed parties to carry business activities as co-owners of a single business set-up. Profits may be shared according to ‘partnership contract’ or on equal basis amongst all partners based on the initial (and additional) capital investments of each partner.
Difference between joint venture and partnership
The important difference between joint venture and partnership is given below:
A partnership is formed when two or more individuals decide and act on an intention to do business as common holders of that business. However, joint ventures are conducted by business entities.
2. Separate identity:
As partnership is a proper business, it requires a proper business name by which it can be identified separately. But, as a joint venture is short-term arrangement between businesses it can normally be called as a ‘joint venture’ between those businesses and is not ascertained a separate name.
3. Primary purpose:
Partnerships are normally formulated between two or more individuals in order to run common business with a primary purpose to earn profits. Whereas a joint venture may have several primary goals like, research and development, penetrating market share, enhancement of cost synergies, decreasing competition in a certain market segment or sector etc.
A partnership is expected to last longer than a joint venture, as partnerships are basically businesses run under joint control of different individuals. Joint ventures are conducted for specific business opportunities. Therefore, they are more limited in terms of duration, commercial activities and scope.
5. Level of autonomy:
In a joint venture each participant can make its own decision independently because the alliance in a joint venture is only limited to the activities of that particular venture. Whereas in a partnership, individual partners cannot act or make decisions independent of partnership and are mutually responsible for the activities and liabilities of partnership based on the terms their contractual agreement.
In a joint venture, the business entities involved add input according to their agreed share of responsibilities. These responsibilities are limited to the venture only. While, in a partnership, each partner is accountable for the liabilities of the partnership as well as the other partners. So, if a partner cannot fulfill his or her financial liabilities the partnership as a whole and/or other partners will have to bear the burden.
7. Legal status:
A partnership is more legal and formal economically. A partnership is a proper business entity which is owned and controlled by different partners. While a joint venture is less formal and is normally limited to a single transaction which can be extended if deemed necessary by the relevant parties.
8. Maintenance of accounting records:
As partnership is a proper business, separate accounting records are required to be maintained for it. Whereas, it is usually not necessary to maintain separate accounting records for a joint venture because it is not a different business entity.
Business entities cannot enter partnerships. Only individual beings can partner a business or firm. Where partnerships focus on the long-term establishment of a business, a joint venture is more of an alliance between two or more businesses to achieve common goals. However, the long-term objectives of both of these activities is the enhancement of long-term profits and reduction of competition for the parties involved.