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Confusion prevails over the differences between a joint venture and a partnership arrangement in Australia. Instead of focusing on the differences, the focus should be on which of the two arrangements better suit the needs of the business goals. These seemingly looking business structures have their own unique characteristics resulting in varying legal rights and obligations. This piece of writing lists down the concept, broad structure and differences between Joint Venture and Partnership in Australia.
A joint venture in Australia is an arrangement where a two or more people (or companies) work toward a common goal. In this kind of arrangement, the two parties pool in their resources and expertise and work together to achieve that short term shared goal keeping their liabilities and responsibilities separate all the time. This ensures that both the parties are still responsible for the costs they incur during the venture along with the profit which will be divided later according to their preference. A Joint Venture’s existence comes to an end once the objectives of forming the same have been achieved by the parties.
A Joint Venture Agreement is entered into between the parties to bring a Joint Venture into existence.
Partnership in Australia is a type of business arrangement which involves involvement of minimum of two parties running business together. Unlike a Joint Venture, a partnership does not have separate entities making their individual efforts rather it is a combined effort of the parties to drive the business. Where a Joint Venture comes to an end once the shared goal is achieved, a partnership does not come to an end as it is an ongoing commitment.
Partnerships have both joint and several liability which means that if one of the partners falls into debt, the other partners would be jointly and severally liable for such act (depending on the partnership agreement). JVs do not have such kind of joint liability. Instead they have liability to the extent of their own responsibilities while working with the other entity.
Following are some of the prominent differences between a partnership in Australia and Joint venture:
Duration of the arrangement
A partnership in Australia is usually an agreement between two or more parties to carry a business together. An arrangement of partnership in Australia is for a longer duration as it is an ongoing business relationship whereas a Joint Venture is focussed towards achieving a specific goal only. A Joint Venture is usually an arrangement for short term projects (though it is not a necessity).
Joint and Several Liability
Another difference between partnership in Australia and Joint Venture is that in a a partnership, the partners have a joint liability. This means that liability against one of the partners to partnership shall extend to the other partners. Similarly, if the partnership business encounters any liability, the partner shall be held personally liable under the doctrine of unlimited liability whereas in a Joint Venture, the parties are not held jointly or severally liable. For example if one of the parties is under debt, this does not translate into liability of the other entity to the Joint Venture. The reason for such an immunity is that essentially both the businesses are separate entities and they have just come together to achieve a common goal for a temporary period only.
The major difference between a Joint Venture and a partnership is that JVs focus on a single goal whereas partnerships are formed with a vision of long term business relationship and the losses and liabilities from the partnership business will be personally applicable or tied to the partners.
The Joint Ventures are governed by the Joint Venture Agreements signed by the parties to the agreement. Additionally, the Australian Contract Law and common law also govern the relationship of a Joint venture. Where the parties to the JV agreement are corporations, then in such case the Corporation Act, 2001 shall also come into play to regulate their dealings.
In case of partnerships in Australia, they are governed by the State and Territory based Partnership Acts. For example, in New South Wales, the partnerships are governed by the Partnership Act, 1892.
The parties in a Joint Venture arrangement have the option of making and claiming their own tax deductions applicable to them whereas in the case of partners in a business partnership are bound to pay taxes on their share of the partnership profit. The tax charged in such case shall be at the individual tax rate.
Having done the above discussion on the differences between a Joint Venture and Partnerships in Australia, it is advised that before finalising the business arrangement of a new business activity, it is advised that the promoters understand the meaning, their structure and the differences under the abovementioned heads of taxation, vision, duration of arrangement, regulatory framework and the extent of liability for each other’s actions in the course of business.
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