Business Structure And Activities For Individuals: Partnership And Joint Venture Agreements

Advantages of Partnership Business Structure

Discuss about the Business Structure an Activity Individuals.

A partnership is an association of business or individuals that comes together with the purpose of carrying on a business, an activity or even a project for either a stipulated or a indefinite period of time. The partnership form of a business is created for various purposes but the most common purpose of setting up a partnership business structure is to earn profit. In order to determine whether partnership form of business is suitable, it is essential to understand the essential features, the advantages and the disadvantages of this form of business structure (Allen and Kraakman 2016).

1. Share of profits- under this form of business structure, all the partners are entitled to share the risks and the rewards associated with the business;
2. Unlimited liability- the partners of the partnership firm are severally as well as jointly liable for all the obligations and debts of the business, which also includes the damages and the losses suffered by the firm arising from the wrongful conduct or omission of the partners (Beamish 2013). The partners are also liable to the parties for any acts or omissions conducted by the partners of the firm;
3. Share of Profits- each partner of the partnership firm shall be entitled to share the net profits of the business, which shall be proportionate to the amount of capital invested by each partner into the partnership business. There is no need for any clause with respect to profit sharing ratio, to be incorporated in the partnership contract;
4. Decision-making- the partners of the firm are entitled with te right to take part in the decision making process to ensure that appropriate decisions are taken in the interests of the company as well as its members. They are entitled to make decisions regarding matters that may have an impact upon the business and its assets.
5. Flexibility- the business structure of a partnership fro of business is flexible in nature as the partners are at liberty to decide how the business procedure of the business should be carried out.
6. Taxation- the partners shall be accountable for their respective tax payments owing to the fact that the partners are self-employed and do not work under an employer.

• The partnership business structure permits sharing of labor, skill, equipment, expertise and financial resources.
• Unlike the incorporated entities, the expenses associated with the establishment of a partnership form of business are comparatively low. A partnership comes into existence by entering into a partnership agreement.
• Since a partnership form of business is not a separate legal entity, the partners are entitled to certain tax benefits. The partners may use the losses sustained by them in the partnership business to offset the income they have earned from the other sources however, the partners can use the income lost to the extent of their partnership share (Bubb 2014).
• The most appealing feature of partnership businesses is that the partners are entitled to share the profits and losses between each other.

The disadvantages that a partnership form of business suffers are as follows:

• Since a partnership form of business is not a separate legal entity, each partner shall be personally liable for the debts and obligations of the partnership firm. Moreover, a partner shall be accountable for the debts, wrongful acts or omissions of other partners as well. Hence, they shall be jointly and severely responsible for the debts and obligations of the partnership business (Cojocaru 2015).
• Another disadvantage of this form of business structure is that it would cease to exist with a change in the membership. To remove any individual person as partner, the partnership has to be dissolved and re-formed with the new members.

A joint venture form of business structure refers to an agreement between two or more companies or individuals where parties work together towards the planned goal while maintaining their separate entities or businesses. Each of the parties to such joint venture shall be responsible for the debts incurred while carrying out the project and after the completion of the project the parties shall divide the profits between themselves (Hynes 2014). The relationship of the parties to a joint venture is usually governed by the joint venture agreement.

Businesses may select joint venture agreement for various short term and long-term projects such as publishing agreements, transportation agreements, Research and Development agreements, etc.

The essential features of joint venture business agreements are as follows:

1. Flexibility in tax- this form of business structure ensures greater amount of flexibility in terms of taxation;
2. Limited liability- the liability for debts and obligations arising in a joint venture form of business is considered to be separate and the parties are not jointly liable;
3. Non-liability to partners- the partners are not liable for the wrongful acts or omissions of other partners;

• One of the advantages of an unincorporated joint venture is the convenient setting up of the working relationship between each of the participants.
• In the absence of an incorporation of a new entity that is jointly held by all the participants, there is no need to develop a corporate structure that complies with the corporation laws within the jurisdiction, in which the joint venture business is carried out.
• There is a growth in the business structure without borrowing money or looking out for external investments;
• There is a scope of development of new products and services. it further allows greater access to more resources for the parties who are involved in such joint venture business;
• This form of business structure enables the parties to gain better access to additional resources such as technology , specialist staffs etc;
• The most appealing feature of this form of business structure is that there a temporary and not permanent commitment between the parties involved in the joint venture business.

The joint venture form of business has certain disadvantages as well which are enumerated as below:

• It might be difficult to find the appropriate competent people and developing a trusting and strong relationship between such people;
• In order to avert any form of conflict with the co-business partners, the parties to the joint venture business must comprehend the terms, goals and objectives of such business;
• Business partners may not be committed to the project as is required by the joint venture agreement.

The terms of the agreement is governed by the contract law and common law, which governs the joint venture. In case separate legal entity is incorporated for joint venture, then the Corporations Act shall come into play.

In Australia, each state has its respective legislations that govern partnerships. Such as Partnership Ac 1963 in ACT, Partnerships Act 1892 of NSW, Partnership Act 1891 of Queensland, Partnership Act 1958 in Victoria, etc. However, the definition of partnership encompasses certain essential elements, which is common in every jurisdiction. They include valid agreement, the common objective to carry on a business unlike the joint venture, which deals with single transactions, and the objective of earning profit. There is no law that expressly governs joint ventures in Australia (Lawrence 2013). They are subjected to an amalgamation of general legislation and other legal rules pertaining to contract, corporate law and other regulatory aspects.

Disadvantages of Partnership Business Structure

People often make common mistakes while using the interchangeable gradation of terms ‘joint venture agreement and partnership agreement’. Although both the terms are ostensibly similar on the very face of it, there are certain differences between both the terms. Despite the fact that it is hard to differentiate between the two terms, there are few differences between the terms (Miller 2015).

A partnership agreement is a statutory relationship between two or more individuals for the purpose of carrying on the business with the objective of earning profit. In case of a partnership agreement, it is essential that the mutual intentions and aims of the partnership agreement is shared and agreed upon by the parties to the joint venture agreement. The development of a formal partnership agreement aims at eliminating any potential conflict among the partners that may arise out of the partnership business in the future (Mann and Roberts 2015). The partnership agreement must stipulate the duties and obligations that mandate the employees to follow while carrying out the business operations.

On the other hand, a joint venture agreement is vaguer as compared to the partnership form of agreement. In other words, a joint venture agreement is a form of partnership agreement. It is a legal relationship that may be developed formally. However, the essential terms of the agreement shall be stipulated in a written joint venture agreement. Moreover, there is no precise legal definition but the legal relationship includes an unincorporated joint venture. A formalized joint venture agreement identifies that the individuals have not formed any form of partnership.

It is recommended that before entering into a joint venture or partnership agreement, it is mandatory to understand the objectives and goals of the business that the person starting up the business aims at achieving. Both the joint venture and partnership form of business is advantageous but have their respective disadvantages. If flexibility is the essential feature that Lance, Nick and Xaojing are looking for in their herbal product business, then joint venture form of business is appropriate (Miller 2015). However, partnership form of business has specific duties and obligations stipulated in the partnership agreement unlike the joint venture agreement that is relatively vaguer.

Further, there is no legislation governing the joint venture form of business structure, whereas the Partnership business is governed by several legislations in every individual states of Australia, which provides a legal framework for businesses in the country. Since Nick, Lance and Xaojing wanted to start up business together, partnership form of business would be appropriate as the partners are liable for the debts and obligations of each other, unlike, joint venture where the parties are not accountable for each other’s liability.

Reference list

Allen, W.T. and Kraakman, R., 2016. Commentaries and cases on the law of business organization. Wolters Kluwer law & business.

Allen, W.T. and Kraakman, R., 2016. Commentaries and cases on the law of business organization. Wolters Kluwer law & business.

Beamish, P., 2013. Multinational joint ventures in developing countries (RLE International Business). Routledge.

Bubb, R., 2014. Choosing the Partnership: English Business Organization Law During the Industrial Revolution. Seattle UL Rev., 38, p.337.

Clarkson, K., Miller, R. and Cross, F., 2014. Business Law: Texts and Cases. Nelson Education.

Cojocaru, C., 2015. Some Consideration regarding the Joint-Venture Agreement as Per the Current Regulation. In Conf. Int’l Dr. (p. 108).

Hartman, L.P., DesJardins, J.R. and MacDonald, C., 2014. Business ethics: Decision making for personal integrity and social responsibility. New York: McGraw-Hill.

Hynes, J.D., 2014. Agency, partnership, and the LLC: the law of unincorporated business enterprises: selected statutes and form agreements. LexisNexis.

Lawrence, G.M., 2013. Due Diligence in Business Transactions. Law Journal Press.

Mann, R.A. and Roberts, B.S., 2015. Business law and the regulation of business. Nelson Education.

Mann, R.A. and Roberts, B.S., 2015. Business law and the regulation of business. Nelson Education.

Miller, R.L., 2015. Business Law Today, Standard: Text & Summarized Cases. Nelson Education.