Differences Between a Joint Venture & a General Partnership
While joint ventures have several attributes in common with general partnerships, they remain two distinct contracting vehicles. The primary difference between the two is the overall duration of the entity. Joint ventures are designed to be temporary vehicles to assist in the growth of the members. General partnerships are created as long-term ventures between the partners involved and are not designed for a project-to-project basis.
Joint ventures bring together two or more separate business entities in order to undertake a specific project or business idea in a mutually beneficial manner. By doing so, neither party gives up its individual daily business operations, nor does either give up control of its company. Both parties continue to operate independently of one another, except for the project or venture they have chosen to pursue together. Each member invests capital and resources, and each party takes a share of the overall risk involved. In contrast, a general partnership brings together two or more individuals in a permanent business relationship. There is no separation of operations, and there are no limitations on the projects and activities that may be sought.
Joint ventures and general partnerships operate according to the laws and statues of the states of their primary operation as well as the federal government. As such, it is imperative that all parties formalize the relationship through a partnership agreement or a joint venture agreement. This document should include detailed information regarding each member as well as the investments each party provides to the business operation. For a joint venture, this document will also include the primary business location as well as any subsequent locations, the overall nature of the joint venture, as well as what types of projects and operations will be performed. Lastly, the agreement should include a list of duties and responsibilities for each party involved.
The Internal Revenue Service does not require joint ventures to file a return as a separate entity. All revenues and expenses are included on the member's return to the extent of its interest in the joint venture. Likewise, a joint venture is not specifically required to acquire a separate Employer Identification Number (EIN) from the IRS. General partnerships must, by law, apply for an EIN upon formation of the company and must file a business return form 1065 each year.
Both a general partnership and a joint venture should be formed through a contractual agreement. Termination, therefore, requires a legal dissolution to the entity. In the case of a joint venture, this may happen naturally at the completion of the agreed-upon project. If situations arise that require early termination, legal action may be required through the agreed-upon legal venue to oversee the dissolution and resolve any outstanding fiscal issues. Unfortunately, the process to dissolve a general partnership is often more complex and time-consuming. Generally legal action is required if any issues arise pertaining to the distribution of assets or liabilities.