Comparison Of Features And Legislation Of Partnership And Joint Venture

Features of Partnership

Question:

Compare the Features and Legislation of Partnership and Joint Venture.

Partnership is a legal relationship which is created by the agreement constructed between two or more peoples with an objective to carry on the operations of business as co-owners. A joint venture can be defined as the agreement between two entities which agreed to pool their resources and work together to achieve a common objective. This report will compare the features and legislation of partnership and joint venture. Further, the report will differentiate between them and recommend one of them for Xiaojing, Lance, and Nick business based on the advantages and disadvantages each business structure.

Section 6 of Partnership Act, 1963 defines partnership as a legal relationship constructed between two or more parties (up to 20) based on an agreement to perform the activities of the business in which they are co-partners (Business, 2017). A partnership is operated by more than one individuals who are known as co-partners or co-owners. The co-owners invest their capital in the business of partnership and share its expenses, revenues and losses. The partnership is divided into two types, general and limited. In limited liability, one or more partners have limited liability, and others have general liability, there is no maximum number of limited partners.

Following are the key features of a partnership as per the Partnership Act, 1963:

• Sharing of Risk and Rewards: All the parties in a partnership firm invest their capital in its operations and share its risks and rewards. Any profit or loss incurred in a partnership business is divided between partners based on their partnership ratio.
• Liability: As per section 13, all the partners are jointly responsible for the obligations or liabilities of the partnership firm. The personal property of partners can be used in to pay the debts of partnership firm. Section 49 provides that in case a partner retired or died, then his/her personal property can be used to repay the debts of the firm along with other partners’ share. Section 16 provides that if a partner acts negligently and there is no indemnity insurance, then such liability shall be divided between the partners (Austlii, 2017).
• Decision-making: The partners have right to take decision in a partnership firm and they enjoy fill control over it.
• Flexible: The partnership structure is significantly flexible than compared to other business structures such as a corporation or joint venture. The partners have absolute freedom to assign different roles to other partners, and they can easily alter or modify the terms of partnership agreement.
• Taxation: There is no specific tax over partnership’s revenue, each partner has to pay tax on their share of profit which is included in their personal income.
• Membership Change: The provisions for change in membership are provided in the partnership agreement. Section 77 and 78 provide provision regarding winding up of a partnership; it can be voluntary or mandatory.

The joint venture is a legal arrangement between two or more entities which decided to pool their resources together for accomplishing a particular task. Each member of joint venture invests their capital in the business operations, and they share all the expenses, revenues and losses together (Hewitt, 2005). Following are key features of joint venture:

• Agreement: A legal agreement between two or more parties is necessary to establish a joint venture.
• Dissolution: After completion or achievement of the specific task, the JV comes to an end. In other words, once the parties achieve their objectives the joint venture terminated.
• Name: Generally, the joint venture is created for performing a single venture; therefore, no firm name is given to the joint venture (Pangarkar & Klein, 2004).
• Closing stock: There is no closing stock left in a JV since it is either sold or taken away by any of the parties of such venture.
• Profit or Loss: Usually the revenue or losses in the joint venture is computed after completion or achievement of the task for which it was formed.

The partnership is governed by the relevant law of each state or territory in australa; the individuals are required to assess the partnership act of the state in which they are operating their business. The Partnership Act 1963 provides general guidelines for construction, liabilities, rights, taxation, and winding up of a partnership firm.

A specific legislation does not govern joint ventures in Australia, the general legislation, and provision of contract & agency law, corporate law, taxation, commercial and trade law applied over a JV. The types of JV include contractual, corporate and many others which are hybrid of corporate and contractual JVs based on different legal, taxation and commercial requirement of parties (Handley, Knox, Davis, Caddy, & Zambotti, 2017).

• In partnership, two or more individuals join together to operate a business, whereas in joint venture two or more corporations join together (Legal Vision, 2016).
• The joint venture can be described as a contractual agreement between two or more parties for performing a particular task, whereas, the partnership is considered an agreement to share profit and loss of business (Vanderwolf, 2016).
• In partnership, the parties are co-owners whose motive is to generate profit. In a joint venture, the primary motive of parties is to accomplish the specific task rather than profit.
• A partnership lasts for many years whereas a joint venture lasts for only a limited period.
• In a joint venture, parties can be held jointly or severally liable for wrongful actions of another party. In partnership, criminal acts of one partner do not hold partnership responsible (Legal Vision, 2015).

Advantages

• Low start-up cost (Business, 2017)
• Employees can be made partners
• Tax savings due to income splitting
• Partners’ business matters are private
• Limited external regulation
• Flexible business structure
• Better borrowing ability

Disadvantages

• Partners’ liability is unlimited
• Each partner is jointly or severally liable for firms’ debts
• Risk of disagreement between partners
• Every partner is agent of the partnership firm which means they are liable for the actions of other partners

Advantages

• Provide opportunity to gain new capacity and expertise (RP Emery, 2017)
• Corporations can enter into new markets and gain technological knowledge
• Access to greater sources
• Sharing of risks
• Provide opportunity to business for diversification of their business

Disadvantages

• Lack of proper communication of objectives
• Imbalance in expertise
• Poor integration due to difference in culture and management of two corporations
• Success depends on thorough analysis and research
• Lack of flexibility

For Xiaojing, Lance and Nick’s business, a partnership is a better option than compared to the joint venture. In partnership, they can operate the business of herbal product together and share its risks and profits. The partnership provides more flexibility in operations meaning they will be able to alter and modify the terms of their business agreement easily. The partnership has lower start-up cost than compared to the joint venture. Xiaojing, Lance, and Nick can operate their business for a more extended period in partnership structure than compared to joint venture because it dissolves after achievement of the specific task.

Conclusion

To conclude, the partnership can be defined as a legal relationship between two or more individuals to operate a business and share its profits or losses. A joint venture is a legal agreement between two or more corporations for combining their resources to accomplish a specific task. For Xiaojing, Lance and Nick, the partnership is a better option than joint venture due to its various benefits such as low start-up cost, limited external regulations, flexible structure and it can be created for a more extended period than compared to a joint venture.

References

Austlii. (2017). Partnership Act 1963. [online] Austlii. Available at: https://www8.austlii.edu.au/cgi-bin/viewdb/au/legis/act/consol_act/pa1963154/ [Accessed on 11/11/2017]

Business. (2017). Partnership- advantages and disadvantages. [online] Business. Available at: https://www.business.tas.gov.au/starting-a-business/choosing-a-business-structure-intro/partnership-advantages-and-disadvantages [Accessed on 11/11/2017]

Business. (2017). Partnership. [online] Business. Available at: https://www.business.gov.au/info/plan-and-start/start-your-business/business-structure/business-structures-and-types/partnership [Accessed on 11/11/2017]

Handley, A., Knox, M., Davis, B., Caddy, M. & Zambotti, L. (2017). Joint ventures in Australia: overview. [online] Thomson Reuters. Available at: https://uk.practicallaw.thomsonreuters.com/0-616-8149?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1 [Accessed on 11/11/2017]

Hewitt, I. (2005). Joint ventures. Sweet & Maxwell.

Legal Vision. (2015). How do I set up a joint venture?. [online] Legal Vision. Available at: https://legalvision.com.au/set-joint-venture-2/ [Accessed on 11/11/2017]

Legal Vision. (2016). What is the Difference Between a Joint Venture and a Partnership?. [online] Legal Vision. Available at: https://legalvision.com.au/what-is-the-difference-between-a-joint-venture-and-a-partnership/ [Accessed on 11/11/2017]

Pangarkar, N., & Klein, S. (2004). The impact of control on international joint venture performance: A contingency approach. Journal of International Marketing, 12(3), 86-107.

RP Emery. (2017). Advantages & Disadvantages of a Joint Venture. [online] RP Emery. Available at: https://www.rpemery.com/articles/advantages_and_disadvantages_jv.htm [Accessed on 11/11/2017]

Vanderwolf, S. (2016). Partnerships v Joint Ventures. [online] Lexology. Available at: https://www.lexology.com/library/detail.aspx?g=be333b86-96da-4890-8d63-c59833390825 [Accessed on 11/11/2017]