Differences Between Joint Ventures and Partnerships in the UK

If you are a business in the UK trying to decide whether to enter into a joint venture or a partnership, it is important to be aware of the differences. Joint ventures and partnerships are very different types of business structures. This article discusses the key differences between both types of business structures.

Basic Definitions

A joint venture is when two or more individuals or businesses enter into a collaboration for the purpose of a specific project or specific task.

Typically, once a project is complete, the joint venture will end. A joint venture agreement will detail the specifics of the business arrangement, including:

• each party’s responsibilities;
• the time period of the arrangement; and
• how the joint venture will end.

Examples of projects that would lead to a joint venture agreement include:

• large-scale manufacturing;
• development of new technology; and
• new food products.

In contrast, a partnership is where two or more individuals enter into a long-term arrangement where the partnership is intended to last the lifetime of the business. Partners within a partnership usually join together with profit as their common goal.

Examples of businesses in the UK that are partnership structures include:

• NotOnTheHighStreet;
• Whatsapp; and
• Carphone Warehouse.

Key Differences Between Joint Ventures and Partnerships

Time Period

Joint ventures are usually a shared project; therefore, each party contributes so that all parties share the risks and rewards for a limited time until the project ends. In contrast, a partnership is for the lifespan of the business. As such, all parties to a partnership share the responsibilities, risks and rewards for a much greater length of time.

Liability of the Parties

A joint venture agreement will usually outline liability in a joint venture within the joint venture agreement. Each party will agree to their liabilities. In a partnership, all partners are jointly and severally liable for the debts and responsibilities accrued by the partnership.

Legal Registration

As mentioned, a joint venture will include a joint venture agreement for the single project, which is a contract signed by all parties agreeing to the terms of the project. A joint venture does not have to be registered with Companies House, whereas this is a strict requirement of partnerships in the UK. As well as this, all partnerships should ideally have a partnership agreement drafted to outline all applicable terms and responsibilities of partners. Without a partnership agreement, you will risk the Partnership Act automatically applying, which treats all partners equally.

Tax Obligations with HMRC

Joint ventures will be treated as separate legal entities to the companies that are party to them. In a partnership, however, the partnership itself is not taxed. Rather, individual partners are taxed based on the share of profits they have received. Therefore, the tax situation is very different for both.

Purpose

Typically, you would create a joint venture with a specific purpose in mind, such as to complete a project. As such, individuals agree to pool their resources and work together until their goal is complete. In contrast, a partnership is created with the aim of running a business with the common aim of making a profit.

Key Takeaways

While joint ventures and partnerships have some similarities, they are different kinds of business structures. If you need help or advice around drafting a joint venture or partnership agreement, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions