Is it a Partnership or a Joint Venture?
Your business structure is an important part of its success. Two business structures, partnerships and joint ventures, seem very similar, which can be confusing. Let’s discuss the difference between the two.
What is a Partnership?
In Canada, there are three types of partnerships: general partnerships, limited partnerships, and limited liability partnerships.
A general partnership is a business structure that consists of two or more persons forming a business to make profit. An example is if you and your friend decide to open a restaurant or company together to earn money. Partnership agreements are not required in most provinces, but partners should create one to help ensure their business runs smoothly and to keep partners accountable. It’s also a good idea to create a partnership agreement to have written documentation about what the partners agreed to and how much capital each partner contributed. In this type of partnership, both partners contribute capital to the business, which benefits the business because there is a larger pool of capital than if just one person started a business. One of the cons is that both partners are personally liable for the partnership. For example, if the business goes into debt, creditors can go after the partners’ personal assets.
A limited partnership consists of at least one general partner and one and one or more limited partners. The general partner manages the business and is subject to unlimited liability, like the partners in a general partnership. The limited partners contribute capital to the partnership and are only liable for their contribution, but, they cannot help manage the company.
A limited liability partnership (LLP) is only available to certain professionals such as lawyers and accountants. To form an LLP, certain requirements from provincial legislation must be met. For example, in Ontario, the profession must be governed by an Act that allows the professionals to establish an LLP. LLPs are not an option for most businesses.
What is a Joint Venture?
A joint venture is where two parties join forces for a specific business project. The parties can be individuals, partnerships, or corporations. A joint venture is different from a partnership because each party remains a separate business, unlike in a partnership where two parties join to create one business. A notable example of a joint venture is the collaboration between Google and NASA, two distinct companies, to create Google Earth. Some reasons to enter a joint venture include accessing another company’s resources to create a new product, expanding your business, or breaking into new markets.
As for any business arrangement, if you’re considering a joint venture, it is important to form a joint venture agreement. A joint venture agreement is a contract between the parties to ensure the joint venture operates smoothly. Some examples of information the agreement should include are the project’s structure and purpose, duration, and the resources each party contributed.
How do you know whether a Partnership or Joint Venture is right for you?
If you already have a business and want to take on a new project with the help of another individual or company, then consider a joint venture. However, if you want to start your own business with another individual, such as a friend, or contribute capital to and help manage a business, then consider a partnership.
Author Credits
Erin Kasner-Remer is a final year law student at the University of Ottawa and a 2022 EFV Legal Intern. She is interested in Business and Family Law, and can be found exploring new restaurants and cafes. Connect with her on LinkedIn.
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