When two or more parties voluntarily agree to run a for-profit business together with which they’ll equally share management responsibilities as well as profits and losses, that’s a partnership. Partnerships are governed by partnership agreements. Joint ventures are a special type of partnership, and a joint venture agreement should cover additional factors that may not necessarily be needed in a partnership agreement.
A partnership is entered into by two or more individuals, groups, companies or corporations. Each partner participates in business operations and is liable for the business’ actions and debts. A limited partnership is a little bit different. In a limited partnership, the general partners manage the business and are liable for the company’s actions, whereas the limited partner only contributes capital and shares in the profits of the business without participating in the management of the business.
Typically, joint ventures are short-term partnerships between two or more individuals, governmental entities, companies or corporations that are formed to pool, exchange or integrate some of their resources with a view to mutual gain, while at the same time, remaining independent. A joint venture isn’t a business organization like a sole proprietorship or corporation, because unlike those entities, typically joint ventures have a shelf life and are entered into by the parties for a particular purpose and for a defined period of time.
For instance, on October 9, 2007, SABMiller and Molson Coors Brewing entered into a joint venture to create MillerCoors. The two companies created the JV with a single, definable objective in mind: combining their US brewing operations to better compete with Anheuser-Busch Companies, which have long dominated the American market. The JV allowed the two companies to start saving around $500 million in annual costs and create a strong portfolio of brands – from domestic beers like Coors Light to import beers like Peroni. In addition to saving costs and becoming more competitive in the marketplace, entities also engage in joint ventures for a number of other reasons like to enter into foreign markets or enhance technological capabilities.
Once established, a joint venture can structure itself as a general partnership, a limited partnership, a corporation or a limited liability company, aka an LLC.
The Uniform Partnership Act, which has been adopted by many states as the governing partnership law, defines a partnership agreement as “the agreement, whether written, oral, or implied, among the partners concerning the partnership, including amendments to the partnership agreement.” A partnership agreement is a contract that governs the actions and behavior of the partners in regards to the business.
Partnership agreements are important because each partner can be held completely liable for the company’s actions and can unilaterally make decisions for the business without seeking the consent of the other partners unless otherwise stipulated in the partnership agreement. The partnership agreement should outline distribution of shares, rights and responsibilities of each partner, and provisions for the termination or dissolution of the partnership.
Joint venture agreements
Like a partnership agreement, joint venture agreements should also establish the managerial and financial structure of the business and provide for the dissolution of the partnership. Additionally, however, a joint venture agreement should outline the purpose of the joint venture as it is being entered into for a specific business objective.
There are questions that should be asked regarding the scope and purpose of the joint venture, including: what activities does the JV expressly intend to do or refrain from doing? Is there any core technology or other intellectual property either to be transferred to the JV or to be granted by the parties to the JV? The joint venture agreement should also identify the contribution, role and involvement of each co-venturer; the terms or duration for which the joint venture will exist; and allocation of revenues and expenses from the project.
This is only a brief overview of some of the main components of partnership agreements and joint venture agreements. When drafting your own, appropriate professional services, such as legal counsel should be sought out and utilized.