Confusion commonly arises between two similar business entities: partnerships and joint ventures. These two terms are often used interchangeably, but they can mean very different things.
Because your choice of business entity has a major impact on the rights, responsibilities and liabilities of everyone involved, it’s important to be clear about what type of entity you’re creating–especially when it comes to joint ventures.
Partnership: The default presumption
Oregon law presumes that two or more persons carrying on a business for profit creates a partnership, regardless of the parties’ actual intent, unless otherwise agreed. A partnership is thus a broad entity that assumes equal rights, responsibilities and liabilities. One partner’s wrongful conduct or signing of a contract can create liability for the other partner, even without that person’s awareness or approval.
Inadvertently creating a partnership can lead to serious problems down the road–especially if the parties intended to form a different arrangement. Moreover, failing to clearly define each partner’s roles and responsibilities within the partnership can lead to liability and related disputes.
Joint venture: More limited in scope
A joint venture has many similarities to a partnership and may, in fact, be a partnership. However, joint ventures are usually more limited in scope. They may exist solely for the purpose of a single transaction, project or business goal. They might involve multiple individuals or businesses working together.
Each party’s risks and role in the joint venture should be spelled out. The scope of the venture should also be well-defined, so as to avoid the appearance of an ongoing partnership for other pursuits.
A word of caution
Without a clear, written agreement spelling out the limits of the arrangement, an attempt to create a joint venture for a limited purpose could easily result in the inadvertent creation of a broader partnership. Legal guidance on the front end of starting a business venture is critical for avoiding such costly missteps.