Both a joint venture and a general partnership are ways for two entities to work together to meet a common business goal. The primary difference between joint ventures and general partnerships is that a joint venture is between two or more business entities whereas a general partnership is between two or more individuals. There are degrees of liability transferred to the various members of either depending on the structure of the venture or partnership.
Level of Involvement
The level of involvement in a joint venture is not necessarily any less than the involvement in a general partnership. The primary difference is that a joint venture already involves established business entities who often have other business dealings that have nothing to to with the joint venture. In a general partnership, people come together to create a working entity that maintains its own mission, bylaws, and board. In the most simplistic of terms, the joint venture is an agreement to work together in one area whereas the general partnership marries the individuals for the greater goals of the organization.
There are significant considerations when it comes to liability and the differences between a joint venture and a general partnership. Lenders prefer to look at general partnerships when giving a loan or credit to the entity because each of the partners assets can be accumulated and attached. This means that the liability of all debts and even lawsuits are transferred directly to the general partners. Partners are generally liable based on pro rata shares of the partnership, but may be held liable for all debts if other partners are insolvent. A joint venture is limited with liability to each businesses’ interest in the venture.
The tax treatment of joint ventures and general partnerships varies from state to state. Some states view the joint venture as a partnership regarding all tax issues with the taxes shared completely. Other states view the tax treatment based on the share of profits and losses, controlling interest, and working intent in the venture. General partnerships are not taxed independently; the taxes siphon down to the partners where joint ventures viewed independently are taxed as a business and all income is additionally taxed to owners taking a pay check.
When considering teaming up with another business or group of business colleagues for any endeavor, it is imperative to speak with a business attorney in the state you will be operating in. Review the best structure arrangements and what the tax and personal liabilities are to you. While a joint venture limits the scope of any relationship and prevents the other entities from imposing management decisions on your other business practices, it may create more liability to you personally to enter into a general partnership. Consider how much control you want to maintain over the new business activity or if you are entering in as a silent partner with financial or other business resources. Your tax adviser and business attorney will guide you to the right structure for your jurisdiction.
- Wiki Law Depot: https://wiki.lawdepot.com/wiki/Partnership_Agreement_FAQ_-_United_States
- SBA Programs: https://www.sba.gov/aboutsba/sbaprograms/gc/programs/gc_cawbo_teaming.html
- Business Lawyers: Partnerships and Joint Ventures: https://business-law.lawyers.com/business-formation/Partnerships-and-Joint-Ventures.html
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