Partnerships are associations of two or more individuals who carry on as co-owners in businesses engaged in for profit. A partnership is defined under a model statute called The Revised Uniform Partnership Act (RUPA).
The individuals who are in the partnership do not have to intend to create the partnership on purpose. A partnership can be formed by meeting only one requirement.
This requirement is that the parties intend to carry on as co-workers in a business operated for profit, as noted above. Whether or not this requirement is met can be determined by examining two factors, including whether or not:
- The parties share in the profits of the business;
- The parties have a right to control the business.
Although there are no other legal formalities required to create a partnership, the majority of partnerships have partnership agreements. Partnership agreements are agreements between the partners that outline the relationship each of the partners has with the business in addition to the rights and obligations that each partner has to the partnership.
A partnership agreement may be formed:
- Orally;
- Impliedly;
- By the actions of the partners;
- In a written form.
It is best to have the partnership agreement in writing when possible so it can act as a reference to quickly resolve any disputes that arise. A written agreement can also be used to solve any future legal issues.
What Is Partnership Liability?
Partnership liability refers to the division of responsibility for any losses or debts of a partnership. For example, if the partnership experiences a loss of profits, the partners likely want to know how the losses are occurring and who is responsible.
Partnership liability also refers to which individual can be held legally responsible for a violation that is performed by the partnership. Partnership liability also includes the injuries that the partnership caused to another business entity or individual.
What Is a Temporary Business Partnership?
A business partnership can be formed under various different circumstances. In some cases, a business partnership is a long-term arrangement.
Another option for a partnership is a temporary business partnership. This type of business venture may also be referred to as a temporary joint venture or a joint venture.
The temporary nature of these types of partnerships is usually related to the temporary needs of the business. For example, if two companies are combining to market a specific product, they may agree to a formal joint venture.
This agreement to work together may be made informally by a conversation and a handshake. However, it is typically done formally and in writing.
Putting a partnership agreement in writing memorializes the terms, meaning that there is less of a chance of a dispute in the future over the terms.
Putting the agreement in writing can also serve as a record if the parties have a dispute. Once the two businesses join to work on the business venture, they can share resources, which makes the venture more efficient and, hopefully, more profitable for each business.
The partnership will terminate when the reason for the joint business venture is completed or at a specific date that the parties agreed upon.
What Are the Advantages of Temporary Business Partnerships?
There are numerous advantages for separate businesses that are working as partners, including, but not limited to:
- The parties can share a customer base;
- The parties can share referrals of customers with one another;
- Shared resources, including:
- Personnel;
- Facilities;
- Technology;
- Materials;
- The parties can share the manufacturing load, reducing costs for each business;
- The parties can share services;
- The parties share in the risks;
- In some cases, a company may be unable to undertake the risk alone but able to accomplish its goal through a joint venture;
- The parties do not have to form a separate, new company or legal entity;
- Lets the business’ regular operations continue with minimal disruption;
- The parties are able to share their distribution channels;
- The overall effort required to accomplish the venture is shared.
One example of this is when Kellogg, the cereal company, joined Wilmar International Limited. Wilmar already had an established business presence in China, a location Kellogg wanted to expand their business.
In this case, Kellogg was able to use the distribution channels and other resources that Wilmar had already established. Kellogg increased its company profits by expanding its market into China.
In addition, Wilmar was also able to increase its business opportunities and, as a result, its profits.
Are There Any Disadvantages to a Temporary Business Partnership?
There may be drawbacks to any type of business arrangement. The primary issue in these situations is the loss of control that may result when two businesses combine their efforts to some extent.
A portion of the business’s finances will be exposed to their business partner because resources are shared to accomplish the business goals. In addition, when two separate business entities come together, it may result in contractual issues.
For example, there may be questions regarding how much resources each of the businesses should be putting into the partnership and whether either of the businesses is allowed to continue with its separate business pursuits.
It is important for businesses to address these issues before entering into a partnership. It is also important that the business partners put in a good-faith effort to follow the agreement.
What Is a Joint Enterprise and How Is it Different for a Joint Venture?
The terms joint enterprise and joint venture are often used interchangeably. As noted above, a joint venture arises when two businesses combine their efforts and resources in order to reach specific, agreed-upon goals.
The venture benefits both businesses involved by allowing them to pool their resources and reduce their individual risk. A joint venture is often entered into by parties that have a specific product or goal they want to produce or attain.
The businesses do not have to combine permanently. They only combine long enough to create the product or meet the goal that benefits them both.
Although the partnership ends at that point, they may work together on a different project in the future. A joint enterprise, in contrast, tends to be informally made.
For example, two businesses may agree to conduct and share research that each requires for a business purpose. The termination of this agreement is not as clear as that of a joint venture because there is no product or goal to be completed. The joint enterprise, therefore, may be terminated whenever the parties decide to end it.
Do I Need a Lawyer to Help Me With My Temporary Business Partnership?
If you are considering planning and participating in a joint venture, it is important to consult with a corporate lawyer who has knowledge of the rules in your state. Your attorney can help you draft a written partnership agreement and ensure it is valid and enforceable.
Having a written partnership agreement can help you avoid future legal disputes. If any disputes arise during the course of your temporary business partnership, your lawyer can provide assistance to resolve the dispute and provide you with representation in court, if needed.
