Important Considerations to Make When Deciding Between a Joint Venture or a Partnership
A joint venture and partnership may sound similar, but in actuality, they are two very different entities. It is true that both are used to combine talents, resources, and skills of several different individuals, but outside of this, the entities are treated quite differently. It is important for entrepreneurs and business owners to understand the differences between the two entities so that they can make the best decision regarding business formation for themselves and their potential partners. Our Alabama business litigation lawyers help individuals, corporations, and other business entities consider their options when teaming up with other parties and decide on the solution that is best for them.
Partnership Versus Joint Venture
In order to determine the best formation for your business goals, you need to first understand the definition of each. A partnership is often defined as the voluntary association of two or more individuals for business purposes. These individuals jointly own a business, split business-related responsibilities, and split profits. A joint venture, on the other hand, is the undertaking of a single defined project by two or more people. Individuals who participate in a joint venture work under an express or implied agreement, have a common purpose, share profits and losses, and have equal say over how the project is carried out.
Specific Considerations to Make
Because partnerships and joint ventures are completely different entities, they are treated differently from a legal standpoint. It is important for you to understand these differences before moving forward with any type of agreement.
- Liability Issues: One of the biggest factors to consider when deciding between a partnership and joint venture is liability. Generally, members of a partnership are equally liable for all of the entity’s obligations. This means that each partner is responsible for the actions of themselves, the actions of other partners, and the actions of all employees. With a joint venture, however, each person is only liable to the extent of his or her investment in the corporation’s stock or in his or her interest in the LLC. If the joint venture is established via a contract as opposed to a corporation or LLC, each party is exposed to liabilities incurred by the venture.
- Tax Considerations: When individuals operate under a partnership, they are taxed individually on their share of profits and losses. However, joint ventures may be taxed as a corporation or partnership, depending on how the venture was formed. Partners are taxed 20 percent of their income, whereas joint ventures are subject to a flat tax rate of 21 percent. There are pros and cons of each, which you should discuss with your Mobile business litigation lawyer
- Fiduciary Duties: When individuals agree to work together under a partnership, they agree to uphold a fiduciary duty to one another. This includes duties of care, loyalty, and good faith to other partners and the entity. While co-venturers also have a duty to other partners of the entity, those responsibilities are not as finite and are limited to business activities of the venture.
Of course, there are several important considerations you should make before forming any type of business entity, but those regarding liability, taxes, and fiduciary responsibilities are the top three.
Work With a Business Litigation Lawyer
If you plan on forming a partnership or joint venture in Alabama, consult with an experienced business litigation lawyer before you solidify anything. The right attorney can help you make the proper considerations and form the entity that best helps you achieve your business goals. Call Cloud Willis & Ellis today to get started.