Joint Ventures vs Partnerships: What’s the Difference?
Written on February 21, 2019
There are many different business formations Florida companies may consider when combining efforts to collaborate on a common objective. Joint ventures and partnerships are two popular structures, but each has its own pros and cons. If you are considering forming either arrangement, you should discuss your circumstances with a Clearwater, FL business law attorney who can advise you on your options. Plus, an overview of partnerships and joint ventures may be helpful.
A partnership is a combination of two or more individuals or entities, which join to carry on a business-related operation. Generally, both parties will have an ownership stake and share the profits from their efforts, and the relationship is ongoing.
In a joint venture, two or more people or companies join to collaborate on a single, defined project. Often, the relationship is a temporary one which is based upon a contract or through creation of a separate entity. Though the parties will share in the profits according to the percentages stated in the joint venture agreement, neither has an ownership interest in the other entity. An entity is considered a joint venture if the parties:
- Combine to achieve a common goal;
- Equally have the right of control;
- Will share a proprietary interest in the subject of the venture;
- Have a right to share profits; and,
- Have a duty to bear losses.
In a partnership, all members are jointly and severally liable for the debts and obligations of the entity. Individuals are accountable for their own actions, as well as the actions of the other members.
A joint venture may be set up as a separate corporation or other limited liability company, which means participants are only liable to the extent of their investment in the company they create. However, if the joint venture is created by contract instead of a separate entity, each member will bear liability as if the relationship is a partnership.
One of the key factors business owners consider when forming a partnership or joint ventures is tax treatment: Internal Revenue Service regulations apply differently, and there are advantages depending on your needs and goals. A partnership is a pass through entity for tax purposes, so all profits and losses are assumed by the individual members. Each partner pays taxes or deducts losses when filing individual income tax returns.
Joint ventures may opt to be taxed as a pass through entity or a corporation under federal tax laws. If taxed as a corporation, the entity itself is taxes and each stakeholder must also claim income or losses.
An Experienced Florida Business Law Attorney Can Provide More Information
This general information may help you understand the basics of joint ventures and partnerships, but it is important to get more customized advice from a skilled lawyer. For assistance with making the right choice, please contact Clearwater Business Law at (727) 785-5100 to schedule a consultation. Our team represents business owners in Clearwater, St. Petersburg, and throughout Pinellas County, FL, and we can provide essential legal guidance.