Joint Ventures v Partnerships

Even the best-laid plans can go astray. Nowhere does this age-old saying seem more appropriate than in the context of a joint venture or a partnership agreement, particularly amongst ‘friends’. Doing business with others is always inherently risky, and unfortunately the best cure for interpersonal or commercial defects that might arise in the performance of your agreement is preventing them from happening in the first place.

Understanding the difference between a partnership and a joint venture can help you to avoid thorny disputes regarding your rights and obligations in the performance of your business agreement.

What is a partnership?

• Two or more individuals, as partners, carry on a business where their relationship is established by a partnership agreement and is governed by legislation such as the Partnership Act 1963 (ACT).
• A partnership is NOT a separate entity (like a corporation, for example).
• Assets of partnership are owned by partners either jointly or in whatever proportions that have been set out in the partnership agreement
• This is an ongoing relationship.

In a general partnership, partners can be jointly and severally liable for other partners’ debts. However, partners can limit their liability in respect of the debts and responsibilities of the business in the event that they do not participate in the management of the business

‘Joint and several liability’ arises where the partners jointly agree to do something, but also individually make separate promises to do that same thing. This means that each of the partners are liable for the entire obligation until all the partners perform the relevant obligation.

Another important difference is that partners owe fiduciary duties to each other – that is not to say each partner is obliged to act in the interests of the other, to the exclusion of their own interest.

Broadly speaking, this means not allowing your personal interests to conflict with those of the partnership, or retaining any personal benefit obtained through your partnership position.

How is a joint venture different from a partnership?

• The relationship between the parties is characterised as entering into an agreement to work on the same goals or a defined project whilst remaining separate entities.
• Think of a joint venture as a temporary commitment to a common goal.
• The contributions of venturers may differ – as to how much each party puts in, the nature of these contributions, and when these contributions occur.
• As opposed to partnerships, a joint venture relationship is governed by common law, contract law and the Corporations Act 2001 (if you choose to set up a specific company as a vehicle for the joint venture).
• Where the parties fall into a dispute, the extent of the contractual relationship is determined by the Court.
• Joint venturers do not owe fiduciary obligations to each other.

What happens if I fall out with my partner or the entity I am in a joint venture with?

In an ideal world, both parties would have a clear understanding as to the nature of their relationship, and their rights and liabilities throughout the performance of their respective obligations.

However, this is not always possible, or easy as people proceed “in good faith” by not documenting the nature of their intentions in getting into business with another. Other issues might not rear their heads immediately, therefore eventually unequal contributions by partners and joint venturers, parties who do not hold up their end of the agreement, personality clashes, and a general loss of trust can lead to complex disputes. Having your agreement properly documented can save a lot of stress and costs in the long run.

We can assist you with:

• Ascertaining your rights, liabilities and obligations under your joint venture agreement or your partnership agreement.
• Advising on exiting a joint venture or partnership agreement.
• Preventing the other partner from dealing with the assets of the partnership in an inappropriate manner.
• Complying with any applicable restraints of trade and non-compete clauses in either your partnership or joint venture agreement.
• Ensuring that profits of the partnership, or the joint venture are distributed appropriately.
• Representing you in negotiations or appearing for you in court proceedings.

To keep your plans from going too far astray, please contact the BAL Lawyers Litigation and Dispute Resolution team on 02 6274 0999.