Difference Between Joint Venture and Partnership

Difference Between Joint Venture and Partnership

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Jan 18, 2024 17:49 IST

A joint venture is a business arrangement where two or more entities collaborate for a specific project or a limited time. In contrast, a partnership is a long-term business relationship where individuals or entities share the responsibilities, profits, and losses of an ongoing business enterprise. 

 

A joint venture and a partnership are both collaborative business arrangements but serve different purposes. In a joint venture, two or more businesses join forces for a specific project or for a defined period. They share the project’s costs, profits, and management. In contrast, a partnership involves a long-term business relationship where partners share management responsibilities, profits, and losses across all aspects of the business.

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Table of Content

Comparative Table: Joint Venture and Partnership

Aspect Joint Venture Partnership
Definition A business arrangement where two or more entities collaborate for a specific project or time frame. A business organization where two or more individuals collaborate for ongoing business activities.
Duration Generally temporary and project-specific. Usually a long-term and continuous business relationship.
Legal Entity May or may not form a separate legal entity. Does not form a separate legal entity from its owners.
Objective To accomplish a specific task or project. To carry out general business operations and share profits and losses.
Contribution Entities contribute resources, technology, or capital for the specific project. Partners contribute capital, skills, and other resources to the entire business.
Profit and Loss Sharing Profits and losses are shared based on the agreement for the specific project. Profits and losses are shared among partners based on their agreement across all business activities.
Management Management responsibilities may be shared or retained by one entity. Partners share management responsibilities and decision-making.
Liability Liability is generally limited to the extent of the project. Partners are personally liable for the debts and obligations of the business.
Dissolution Dissolves once the specific project is completed. May continue indefinitely until partners decide to dissolve or if a predetermined event occurs.
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What is Joint Venture?

A Joint Venture (JV) is a strategic alliance where two or more business entities enter together for a specific project or business activity. Each participant in a JV retains its distinct identity while contributing to the venture in terms of capital, technology, or human resources. They share the enterprise’s expenses, revenues, and control, combining their resources and expertise to achieve common goals. JVs are often used to enter new markets, develop new products, or share risks. Upon achieving the objectives or after a predetermined period, the JV is usually dissolved, and each entity continues its separate path.

Joint Venture Example

Companies Involved: Tata Global Beverages and Starbucks Coffee Company.

Nature of JV: Tata Starbucks Limited is a 50:50 joint venture that owns and operates Starbucks outlets in India.

Objective: To tap into India’s growing coffee market and leverage Tata’s extensive local knowledge with Starbucks’ expertise in coffee.

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Strengths of Tata Company:

Local Expertise: Tata provides extensive knowledge of the Indian market, including consumer preferences, regulatory environment, and supply chain logistics.

Real Estate Assistance: Helps secure prime locations for Starbucks outlets across India.

Supply of Tata’s Premium Coffee: Tata supplies Starbucks with specially sourced and roasted coffee beans.

Strengths of Starbucks:

Global Brand Recognition: Brings in a globally recognized and esteemed coffeehouse brand to attract a large customer base.

Operational Expertise: Offers extensive experience in running coffeehouse chains efficiently and profitably.

International Standards: Ensures high-quality products and services, maintaining international standards in the Indian outlets.

Reason for Coming Together:

Leveraging Combined Strengths: The joint venture allows companies to leverage each other’s strengths for mutual benefit.

Market Expansion: Starbucks aims to expand its footprint in the growing Indian coffee market.

Local Insight and Global Expertise: Combines Tata’s local insight with Starbucks’ global expertise to offer a high-quality coffee experience to Indian consumers.

Shared Investment and Risks: Allows both companies to share the investment and risks associated with entering a new market.

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What is Partnership?

A partnership is a business organization where two or more individuals or entities collaborate to achieve shared business objectives. Partners contribute capital, skills, and other resources to the business and share profits and losses. Unlike a joint venture, which is generally project-specific and temporary, a partnership entails a more sustained and comprehensive business relationship. Partners are involved in the day-to-day operations and management of the business, and each partner is personally liable for the debts and obligations of the business. Partnerships are commonly used in professional services sectors like law, accounting, and consulting, offering flexibility and simplicity in business operations.

Partnership Example

Example: Bharti Walmart

Companies Involved: Bharti Enterprises and Walmart.

Nature of Partnership: Bharti Walmart was a business partnership for wholesale cash-and-carry and back-end supply chain management operations in India.

Objective: To leverage Bharti’s extensive domestic knowledge and Walmart’s global retail expertise for mutual growth in the Indian market.

Strengths of Bharti:

Local Expertise and Insight: Bharti contributes extensive knowledge of the Indian market, including consumer behaviour, regulatory landscape, and local business practices.

Network: Offers a wide network of local suppliers and contacts.

Understanding of Indian Retail: Provides a deep understanding of India’s wholesale and retail sectors.

Strengths of Walmart:

Global Retail Experience: Brings in extensive global retail experience and expertise.

Supply Chain Management: Offers advanced supply chain and logistics management skills.

International Sourcing: Provides access to a global network of goods and suppliers.

Reason for Coming Together:

Mutual Growth in Indian Market: Both companies aim to grow mutually in the burgeoning Indian market.

Leverage Combined Strengths: The partnership allows Bharti and Walmart to leverage each other’s strengths for a competitive advantage.

Expand Wholesale Operations: Walmart aims to expand its wholesale cash-and-carry operations in India with the help of Bharti’s local expertise.

Enhanced Supply Chain: The collaboration aims to enhance back-end supply chain management operations, ensuring efficiency and cost-effectiveness.

Key Differences: Joint Venture and Partnership

  • Duration: Joint ventures are typically formed for a specific project or limited time, whereas partnerships are generally for ongoing, long-term business operations.
  • Purpose: Joint ventures are usually created for a single business transaction or project, while partnerships involve running a business together.
  • Legal Structure: A joint venture is a contractual agreement between parties, whereas a partnership is a formal business structure with legal implications.
  • Profit and Loss Sharing: In joint ventures, profits and losses are shared based on the JV agreement, whereas in partnerships, they're typically shared equally or as per the partnership agreement.
  • Autonomy: Each entity in a joint venture retains its autonomy, while in a partnership, individual partners act on behalf of the partnership.
  • Liability: Partnerships often involve shared liability among partners, whereas, in joint ventures, liability depends on the terms of the JV agreement.

FAQs

What is the main difference between a joint venture and a partnership?

A joint venture is formed for a specific project or for a limited period, whereas a partnership is a long-term agreement where parties manage and operate a business together, sharing profits, losses, and responsibilities.

Is liability different in a joint venture compared to a partnership?

Yes, in a joint venture, liability is generally limited to the extent of the project, while in a partnership, partners have personal liability for the debts and obligations of the entire business.

Do joint ventures and partnerships form separate legal entities?

A joint venture may or may not form a separate legal entity, depending on the agreement. In contrast, a partnership does not create a separate legal entity from its owners.

What happens upon completion of a project in a joint venture and partnership?

A joint venture usually dissolves after the completion of a project, while a partnership continues indefinitely until the partners decide to end it.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio