Partnerships, Limited Partnerships and Joint Ventures

What is a Partnership?

A business partnership is an agreement between two or more people, express or implied, to conduct certain business activities. The parties to a partnership may be individuals, corporations, and even other partnerships. Partnerships may be

• General partnerships, where all partners have equal rights and duties
• Limited partnerships, where general partners have broad rights and duties, and limited partners have restricted rights and duties
• Limited liability partnerships, where all parties have certain restrictions on liability

The principal characteristics of a general partnership include:

• Joint and several liability—This means that each partner may be responsible not only for his or her pro rata share of partnership debt, but may be personally liable for all partnership debt.
• Pass-through taxation—Unlike a corporation, a partnership does not pay income tax at the business entity level. Instead, the income earned by each partner “passes through” to his or her personal tax return
• Equal sharing in profit and control

How a Partnership is Formed

The members of a partnership may enter into a written contractual agreement, but such formality is not necessary. Generally, to determine whether a partnership existed, a court will ask whether there was a sharing of profits and losses, joint administration and control of the business, a capital investment by each partner, and common ownership of property. The court will also examine the intent of the parties.

Governing Law

Partnerships are governed almost exclusively by state law—tax concerns and jurisdictional issues are the only notable exceptions.

What is a Joint Venture?

A joint venture is simply an agreement by two or more established businesses to share resources, costs, talent or other items to accomplish a specific objective. A joint venture need not be for the purpose of making a profit—it can be solely in an attempt to share risks or costs. Joint ventures are generally limited in scope, either for a specific period of time, or to achieve a specific goal.

How a Joint Venture is Formed

A joint venture may be established a couple different ways. Often, the parties to a joint venture will set up a new business entity to handle all matters related to a joint effort—a corporation, limited liability company or partnership. However, no formal structure is necessary. A joint venture may be established when parties agree to work cooperatively toward a common end.

The Difference between a Joint Venture and a Partnership

In many respects, a joint venture and a partnership are the same thing. U.S. joint ventures are governed by state partnership laws, and a joint venture is treated the same as a partnership for tax purposes. The key difference, in most instances, is that a joint venture is typically put in place for a single business transaction or a single product line, with a temporary intent. Partnerships customarily address long-term business relationships.

Another key difference is that the members of a partnership cannot take actions that benefit them individually to the detriment of the partnership. In a joint venture, the individual parties retain their separate identities, and must only abide by their commitments to the joint venture.