How does a joint venture differ from a partnership?
A joint venture is an arrangement in which two or more persons combine for a stated project. A partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
What is a joint venture?
There is no Joint Venture Act. The parties write what the project is, what each will contribute, how the result is shared, and when the arrangement ends. They may leave it as a contract. They may also form a company or a limited liability partnership to own the project. A merger of two existing companies is a different transaction, on the restructuring page. A contract for one project does not, by itself, make the parties partners in all of each other’s businesses.
What is a partnership?
Section 4 of the Indian Partnership Act, 1932, defines the relation. The persons are partners, and they are called a firm. Each partner’s liability for the firm’s debts is unlimited. Registration of the firm is optional, and the effect of not registering is on the section 69 page. How a firm is formed is on the partnership page.
A firm cannot have more than 50 partners. A minor cannot be a partner who contracts for the firm. A minor may be admitted to the benefits of the firm, and that minor’s liability is limited to a share of the property. The business is carried on by the partners, or by any of them acting for all.
How do they differ?
| Point | Joint venture | Partnership firm |
|---|---|---|
| Scope | The project in the agreement | The business the partners agree to carry on |
| Statute | The contract, or the Companies Act or the LLP Act if they incorporate | The Indian Partnership Act, 1932 |
| Liability | Whatever the contract, or the company or LLP, provides | Unlimited for the partners |
| Number | The parties to that arrangement | At least two, and not more than 50 |
Who keeps the accounts?
A firm keeps the accounts its tax return needs. Section 44AA of the Income-tax Act requires books in the cases it lists. A joint venture that is only a contract is recorded in the books of the parties, unless they have formed a firm, an LLP, or a company, which then keeps its own books. Profit of a firm is worked out for the year. Profit of a single-project contract can be worked out when the project ends, or at an interim date the parties choose.
Frequently asked questions
Four questions cover the form, the partner ceiling, a minor, and a trade name.
Is a joint venture always a firm?
No. It can be a contract between the parties, or they can house it in a company or a limited liability partnership. A partnership firm is one particular form.
Can a firm have more than 50 partners?
No. A firm cannot have more than 50 partners. The older limits of 10 and 20 are not the current rule.
Can a minor be a partner?
A minor cannot contract, so a minor cannot be a full partner. A minor may be admitted to the benefits of an existing firm. A minor cannot be a party to a joint-venture contract.
Must a joint venture use a separate trade name?
Only if the parties give it one, or if they form a firm, an LLP, or a company that has a name. The contract itself does not create a firm name.
Sources
A partnership is section 4 of the Indian Partnership Act, 1932. The ceiling of 50 partners is section 464 of the Companies Act. A minor admitted to benefits is section 30 of the Partnership Act.