Partnerships and Joint Ventures. A lot of times people use these terms interchangably, thinking they have the same meaning. Those people would be WRONG. The term “partnership” is used loosely in the business world. For example, my Firm has a “Give and Take” Partnership Network of businesses that we work with to promote their businesses to our audiences and send referrals. (www.kendricklaw.net/partnerships) However, there are LEGAL differences between a partnership and joint venture. And although we have a Partnership Network, we are clear in our agreements it’s just a name and does not fall within the legal definition of a partnership.
Explanation and Examples
Let’s take two examples, one of a true partnership and one of a joint venture. A partnership is when two or more people get together and start doing business sharing the same staff, goals, objectives, corporate form and name, space, etc. For example partners in a law firm or with a consulting firm or cleaning business that work comprehensively towards the goal of making meeting. A joint venture is normally when two separate organizations or people get together for a short-term business goal. Think the KFC/Taco Bells that you see put together or if AT& and Sprint decided to do technology forums for the elderly for a year. They still share their own separate corporate entities but have come together for a common goal/objective usually for a short-term objective, although that’s not a necessary prerequesite.
Legal Consequences of a Partnership, not just a Joint Venture
What the Court considers a Partnership and not just a Joint Venture will depend on a number of factors such as: (1) Entity Legal Structure, (2) Compensation/Profit Structure, (3) Shared Resources and Staff, (4) Goals and Objectives, (5) Length of time for goals/objectives, and (6) the Intent of the Parties. It’s worth businesses to be particularly careful to make sure they are in a joint venture, and NOT a a partnership, for the following legal reasons applicable only to partnerships.
1. Partners are JOINTLY and SEVERALLY LIABLE for business debts. Example- There are 4 partners in a firm. The partnership is indebted to a person/organization of $100,000 because of a bad debt or a law suit. The partnership has $60,000 in cash it gives towards satisfying this debt. The firm goes insolvent or bankrupt. The remaining $40,000 will be for each of the 4 partners to contribute PERSONALLY to satisfy the remaining debt. However, let’s assume Partner No. 2 also personally goes bankrupt. The $40,000 is still owed and now falls on the other 3 partners to personally be liable for the $40,000 debt and the debtor can collect ANY and ALL amounts from anyone of those 3 partners. That’s what the “jointly and severally liable” means. If there was instead a “joint venture”, they would not be liable at all as a partner, although there may be a judgment against the joint venture company or person unconnected to being a partner.
2. Partners can BIND the partnership. Partners act as “agents” for the partnership and can sign contracts, enter into agreements, and commit torts that will make the partnership liable. What you don’t want as a business is the person or organization you thought was a joint venturer signing $5M loan agreements or committing torts that make YOU liable, all because you are operating more as a partnership than a joint venture.
3. Partners vote and have ownership. Simply put, the default rule in Georgia is if there is no partnership agreement, the partners equally have a ownership stake in an organization. If you don’t want the court giving 50%, 30% or 25% of YOUR business to another company or person, make sure you have a joint venture and NOT a partnership. Additionally, partners have an equal vote unless otherwise stated in their partnership agreements. You don’t want a partner or partners holding up an important decision that you thought you could make on your own because you have a partnership, not a joint venture.
What Can You Do to Make Sure You Have Only a Joint Venture?
1. Don’t share resources or staff- This is unless you ABSOLUTELY have separate duties defined.
2. Have an agreement- Although this will only be one thing the Court considers, it is a good indication of the parties’ intentions and will be well considered. KLP is here to help. Get started NOW at www.kendricklaw.net/clientservices/getstarted.html.
3. State your goal or objective- It doesn’t have to be short term but most joint ventures are. Make sure your goal or objective is specific, for example to do business consultations for 1 week for 100 business owners, and not general, such as making money.
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