Joint Venture vs Partnership – Which one is for you? 

You know how they say that two heads are better than one? The same goes in business. Finding a partner that you can create synergy with is one of the most powerful tactics you can choose to grow your business. By finding the right person, persons or even companies you can cut costs, increase production, access expertise and intellectual property and enter new markets.

But you can only have those benefits if you also choose the right type of alliance. Both partnerships and Joint Ventures are powerful and beneficial for all those involved, but there are some key differences that make some better for specific situations and the other for, well, other situations. Keep on reading to find out what both joint ventures and partnerships are, what are their advantages and disadvantages and what are the 7 key differences between them.

What is a Joint Venture?

Joint ventures are a type of strategic partnership in the shape of an arrangement or a project between two entities (businesses or persons). They pool together their resources and expertise to achieve a specific goal while they can also remain separated and continue working on their main businesses.

Source: McKinsey

When done right, with mutual understanding from both sides (very important!) joint ventures are powerful growth tactics for businesses. They are so effective that a study by McKinsey found that one of four joint ventures benefits both parties even when they don’t meet their initial expectations. This means that even though the Joint Venture hasn’t achieved its specific goal, all companies still benefit from the many advantages, which we will list in a bit.

One last thing is that the structure and legal aspects of a joint venture can vary, based on local laws and regulations of each country. There is a minimum of elements to be in place for an effective Joint Venture:

  • An agreement
  • Mutual contribution
  • Joint control or right of control
  • A mechanism in place for sharing profits and losses.

What are the advantages and disadvantages of Joint Ventures?

Before moving forward, we must highlight the fact that there is no “right” or “wrong” option when choosing a Joint Venture or Partnership to grow your business. Both types have their pro’s and con’s and only by understanding them all, you will make the best and most informed decision.

Some of the advantages of Joint Venture are:

  • Combining resources and saving costs
  • Combining expertise on market/product/audience
  • Entering new or foreign markets
  • Gaining from shared intellectual property
  • Gaining credibility and competitive advantage
  • Finding new revenue streams
  • Sharing risks, rewards as well as losses

Some of the disadvantages of Joint Ventures are:

  • Difficulty in finding the right partner
  • The risk of entities failing to cooperate and misalignment
  • Lack of commitment from one or both sides.

What is a partnership?

While a Joint Venture is a finite project, a partnership is an ongoing relationship between two or more (maximum 20) businesses or people run a business together. They work on all operations and activities for a prolonged period of time.

The profits are shared as well as the losses (under an agreed ratio) and the governing of the business can either be done by all partners or by a single one that acts and decides on behalf of all the others.

Same as with joint ventures, partnership structures and legal aspects differ from country to country but there are a few elements that need to be in place for a successful partnership:

  • Agreement
  • Membership
  • Sharing of profit and loss
  • Joint ownership
  • Simple dissolution
  • Unlimited liability
  • Registration of the firm
  • Lawful business

Advantages and disadvantages of partnerships

Same as with joint ventures, you shouldn’t just “choose” one of these two types of alliances just like that. They both exist and they are both beneficial when chosen for the right situation. In order to make the best decision, you must first look at the advantages and disadvantages of both.

Some advantages of partnerships are:

  • Being easy to establish and inexpensive
  • Providing an opportunity to combine resources and expertise
  • Being easy to establish and inexpensive
  • Providing an opportunity to combine resources and expertise
  • Splitting income between partners
  • Having a flexible business structure that can be adapted
  • Being collaborative

While some disadvantages of Joint Ventures are:

  • Being liable for the debts of the business
  • Being liable for the debts of other partners
  • Difficult financial duties and responsibilities
  • Risk of disagreement and misalignment

7 key differences between Joint Ventures and Partnerships

While both types of alliances have their advantages and disadvantages, there are 7 key differences that you must know before making a choice.

  • Entities – A joint venture is operated by businesses, people, corporations, governments or other types of organizations also known as co-ventures. A partnership is only between individuals or companies also known as partners.
  • Purpose – Joint Ventures are limited to specific goals and they start as a single project with a clear purpose. The partnership is an ongoing relationship where the partners run their business together for a long period of time.
  • Duration – Joint ventures function until the goal is achieved. Partnerships are continuous.
  • Accounting – Joint ventures are not required to maintain separate books and the method of accounting is through liquidation. Partnerships are required to keep separate books and accounting is done annually.
  • Profit & Loss – For Joint Ventures the ascertainment of profit and loss is done only at the end of the venture or on a regular basis. For partnerships it is done annually.
  • Trade name – Joint ventures are not required to have specific trade names. Partnerships are required to have an identifiable name for their firm.
  • Competition – In a Joint Venture, competitors can be co-ventures ( The result is called Horizontal Joint Venture ). Partners are not allowed to be in a competing business.

By now, you should have a better understanding of the differences between joint ventures and partnerships, their advantages, disadvantages and what are the situations that they are best suited for.

If you found that a Joint Venture is what you need, and you are looking for a technological partner that will help you validate, develop and promote your idea, let’s have a talk. You might just be what we are looking for.

Get a technical partner to accelerate your business.

Leave a Reply

Your email address will not be published. Required fields are marked *