Joint Venture V/S Partnership
Joint ventures and Partnerships are typical legal arrangements used by business owners to pool their resources, abilities, and skills with those of another person or company.
To make it easy, let’s say Joint Venture is when two or more persons do business together.
Here comes the question that isn’t this the definition of Partnership? Two or more persons doing business together? So why are we calling it Joint Venture now and not Partnership? Why did we change its name? Isn’t there going to be a partnership between those businessmen?
Obviously, there is going to be a “partnership “but there is a slight difference between both of them.
Partnership is long lasting and for a longer duration of time whereas “Joint Venture is a Partnership for a short period of time and is temporary.”
Frequently, business owners and layman confuse between the two phrases when defining the association, supposing that they are “interchangeable “. Although there are many parallels between these legal arrangements, there are major variations that business owners should be aware of when attempting to form an alliance with another company. By weighing the benefits and drawbacks of each agreement ahead of time, organisations will be better able to make the best strategic option to assist them reach their objectives.
Let’s understand this with the help of an example-
There is a tender notice to construct a hospital. And whoever will be able to invest 20 crore rupees of tender money, they will only get the tender for hospital.
Now, there is builder “A” who have business capital of 10 crore rupees and builder “B” who also have only 10 crore rupees, but in order to get the tender they should have 20 crore rupees to invest.
Now, what is the solution? “A” comes up with the solution and asks “B” that if he is willing to put his business capital with him and jointly present them for tender. “B” agrees and together they will be able to invest 20 crore rupees of tender money.
This partnership will only last till the time the construction of hospital is going on. They will divide their profits and losses in half. As soon as construction is completed so will be their partnership.
This is known as Joint Venture. A partnership for short period of time and for specific tasks is Joint Venture.
What does Partnership and Joint Venture mean?
It helps to start with definitions and a simple example to properly distinguish between a joint venture and a partnership.
Partnership: A partnership is a voluntary association of two or more persons who own and operate a business for profit together. For example, law firm partners who collaborate to provide legal services for a profit.
Example-
- Red Bull & GoPro
- Sherwin-Williams & Pottery Barn.
- West Elm & Casper
- Dr. Pepper & Bonne Belle.
Joint Venture: A joint venture is a business venture in which two or more persons work together on a single project. The formation of a joint venture is a fact-based decision based on the circumstances. An express or implied agreement, a common objective that the group plans to carry out, shared profits and losses, and each member’s equal voice in project control are all required factors.
Example-
1. Hindustan Aeronautics Ltd
2. Vistara
3. Tata Global Beverages
4. Bharti-AXA General Insurance Co Ltd
5. Fratelli Wines
6. Mahindra-Renault Ltd
7. Sony-Ericsson, for example, was a mobile phone joint venture between the Japanese consumer electronics business Sony Corporation and the Swedish telecoms corporation Ericsson.
INFERENCE
Joint Ventures and Partnerships are two well-known business structures. Many large corporations organise a joint venture for a specific purpose, and after that objective is fulfilled, the venture ceases to exist. Partnerships remain longer because they are not founded with the idea of completing a specific task; rather, the partnership’s sole purpose is to conduct business and share profits and losses.
When it comes to earnings, profits for joint ventures are calculated at the end of the venture, but profits for partnerships are determined annually.
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