For individuals or businesses that want to share resources or potential rewards, but don’t want to enter into a long term partnership, a joint venture allows parties to move forward without the necessity of a merger or acquisition, or the creation of a new legal entity.
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.