Partnerships are legal relationships which are based on contracts where two or more people (or companies) agree to carry on business together with the object of making and sharing profits. Partnerships generally involve an ongoing business relationship. Joint venture partnerships are different from joint venture agreements.
In South Africa in order to establish a partnership the parties must fulfill all the following requirements and state them in a valid agreement:
- Each bring something into the partnership e.g. money, labour or skill;
- the business must be carried on for the joint benefit of both the parties;
- the object of the enterprise must be to make a profit and;
- the intention to be partners must be clear from both parties.
Partnerships are about sharing losses and profits equally.
Joint Venture Partnership Agreement
It is possible to have a joint venture (an agreement to work together) which is also a partnership. A joint venture partnership is able to accommodate both short term and long term relationships. For example, if you are certain you wish to work together for a short term business prospect but also want the opportunity to continue to work in partnership in future provided the short term relationship is successful.
So far, so good but as everyone knows good partnerships are based on a give and take and this can get very risky for a business.
Partnerships, including of the joint venture variety, do not have a separate legal personality. This means the existence of the partnership is based on the partners themselves. Therefore, it is the partners themselves that are liable for all losses incurred by the partnership. The partners carry a heavy risk and financial burden. Because of the position that the partners are in they are also subject to onerous fiduciary duties.
These duties are:
- That the partner must accept the risk liability and other obligations that are associated with the partnership.
- A partner must not compete with the partnership through another business interest.
- Partners must be careful to avoid situations of conflict of interest and,
- should such a conflict of interest exist the partner is under a duty of full disclosure to the other partners.
Are Joint Venture Partnerships a good idea?
So, if you think that you would like to enter into a joint venture we wouldn’t recommend a partnership but instead you could think about a joint venture agreement or joint venture entity which are flexible, lower risk options that offer you better protection.