What’s the difference between a joint venture and a partnership?

The talk when starting a business is usually either to go the sole trader or limited company route. This is all well and good for a solopreneur, but for people who have teamed up, they also should consider whether a joint venture or a partnership would be a better idea. Even within a partnership or joint venture, there are several options within these broader categories, so the parties involved can decide which structure makes the most sense at the time.

Let’s now look more closely at the differences between a joint venture and a partnership.

Joint ventures have their day

There are several joint venture (JV) formats that are available to business people. Typically, a joint venture will include the signing of a non-disclosure agreement to keep deal terms confidential. The two formats that are considered joint ventures are a limited co-operation, and a separate JV.

With a limited co-operation JV, the idea is that two organisations (or people) are agreeing to cooperate for a period. This could be for a small test venture perhaps where one party will produce and sell a product and the other receives a revenue share. Here, a contract is drawn up laying out the agreed terms and what conditions apply to the limited co-operation JV.

With a separate JV business, a formal business structure like a limited company might get registered to conduct business between two organisations (or people). There will be a share ownership distribution and agreements on what each party is responsible for. These are useful to formalise a larger agreement where a limited co-operation joint venture would be insufficient. Keeping the deal under a separate limited company also provides protection for both parties separate to their main companies which mitigates risk.

Partnerships for long-term arrangements

Partnerships are designed for at least two people (or organisations) that team up for a business and are usually active within the business (‘sleeping’ partners can exist too). Records are kept by each partner on income and expenses incurred within the partnership. Each partner manages their own tax liability with the HMRC and files for Self-Assessment; there is no Corporation Tax like there is with a limited company.

There are three types of partnerships: ordinary, limited, and limited liability partnerships.

An ordinary partnership is a simple agreement between the parties. It’s not a legal, formal structure but it must get registered as a partnership with the HMRC. Should one partner leave or pass on, then the partnership is dissolved but the business may continue outside of the agreement.

Limited partnerships comprise limited partners and ordinary partners. The partnership must be registered with the HMRC but usually doesn’t file annual returns as a partnership. With limited partners, their liability is restricted to what’s they’ve invested into the business and guarantees made regarding obtaining finance.

With a limited liability partnership (LLP), it’s a more formal structure. An LLP is taxed as a partnership and has similar limited liability protection as a limited company for the partners. Registering the LLP with Companies House along with filing accounts and annual returns is part of the responsibility of designated members of the LLP.

Professional guidance on appropriate business structures

Whether you’re going full corporate in your ambitious goals or you plan to stay fairly small in organisation size, there is room for several organisational structures. It’s important to consult with qualified solicitors like to discuss your options in more detail and get help setting up correctly before going into business. This way, you’re on solid ground from the outset.

There are clear differences between both partnerships and joint ventures. Sometimes the differences are subtle and other times they’re clear and distinct. Choosing the appropriate structure for your business venture is important because it affects many aspects down the road such as legal protections and levels of taxation. It also helps to take your time with the decision because it’s not a simple matter to change structures later.