What Are the Differences Between Partnerships and Alliances in Business?

by Herb Kirchhoff; Updated September 26, 2017

Businesses can structure themselves in a variety of ways to do business. Two popular business structures are partnerships and alliances. Each structure has pluses and minuses. The essential difference between these structures is that a partnership is a merger of individual interests for mutual profit, while an alliance is a collaboration between sovereign interests for mutual profit.

Partnerships

A partnership is a business structure for a multi-owner business that has not filed to incorporate. It is the simplest and least expensive structure for a co-owned business. In a general partnership, each partner is an owner, has a hand in running the business and can make decisions binding the other partners to a business deal. But each partner is also personally liable for all debts of the co-owned business. A creditor can sue any individual partner for all debt owed, even if that partner wasn’t the one who made the debt.

Easy to Establish

Partnerships are easily established through all parties signing an agreement, registering the partnership with state or local business authorities and obtaining a taxpayer ID number from the Internal Revenue Service. A partnership often goes out of business when one partner dies, retires or quits unless there is an agreement to buy out a departing partner’s interest. Under IRS rules, partnership entities don’t pay taxes. Instead they merely pass business profits along to the partners, who each must file and pay taxes on his share of the profits. The partnership entity itself must file an annual information return setting out each partner’s share of the profits.

Alliances

An alliance is an agreement between two independent companies to share assets, skills and resources to achieve a common goal. For instance, a mortgage lender may ally with a realty company to expand property sales. Unlike partnerships, the members of an alliance remain sovereign business entities and they must mutually agree on all binding business decisions. Alliances typically are collaborations between two companies with complementary products and services, but can also be formed between competitors wanting to seize business opportunities neither company can tackle alone. Alliances are an alternative to mergers, but alliances can fail when members can no longer agree on business goals.

Alliance Types

There are five basic types of business alliance. A joint venture alliance is where two companies combine resources to form a third entity that produces and sells products and services that wouldn’t otherwise exist. An investment alliance is when two companies agree to combine investment resources to develop new products or otherwise take advantage of business opportunities. A sales alliance is when two companies agree to sell each other’s complementary products and services to the mutual benefit of both companies. A geographic alliance occurs when two companies agree to market each other’s products and services in different geographic regions. A solution-specific alliance is when two companies agree to jointly develop and sell a specific product or service.

About the Author

Herb Kirchhoff has more than three decades of hands-on experience as an avid garden hobbyist and home handyman. Since retiring from the news business in 2008, Kirchhoff takes care of a 12-acre rural Michigan lakefront property and applies his experience to his vegetable and flower gardens and home repair and renovation projects.