What is in a name? When you undertake a business venture with another party, what you name that venture can have significant consequences. Terms like “joint venture” and “partnership” may be used interchangeably in casual conversation, but the two legal terms have notable differences in meaning.
While your relationship with a business partner is going well, it may not make much practical difference whether you refer to yourselves as having formed a joint venture or a partnership. Once that relationship sours or misunderstandings erupt, the nature of your business arrangement can become extremely important.
Partnerships Under Arizona Law
Arizona law outlines the specific conditions that allow you to form a general partnership:
- Two or more persons are required in order to form a partnership
- These people must intend to operate a business a co-owners
- The business must be one whose aim is to turn a profit
Most notably, the statute that defines general partnerships, Arizona Revised Statutes Section 29-1012.A, does not require that those involved intend to form a partnership.
Nor must any sort of written agreement be signed before a partnership is formed. As long as the parties do not form some other business entity, such as a corporation, and all of the other requirements are met, the law will recognize the partnership.
Types of Partnerships
A general partnership is just one type of arrangement recognized under Arizona law. Arizona also recognizes limited partnerships, a broad category that includes limited, limited liability, and limited liability limited partnerships.
A partnership in Arizona is considered to be a general partnership unless the requirements for one of these limited partnerships are met.
To form a limited partnership, your organization must have at least one general partner and one limited partner. You must also apply to the Arizona Secretary of State’s office requesting to be recognized as such.
General Partnerships: The Highs and the Lows
In a general partnership, both partners have the authority to act on behalf of the organization when they conduct activities in the regular course of business.
As long as there is no agreement to the contrary, each partner has equal authority to enter into binding contracts. They may also take other actions that create debts and obligations for the partnership.
In addition, each partner shares equally in the profits of the partnership. However, each partner is also personally responsible for all debts and obligations. If you do not have an agreement that changes this arrangement, you could be held responsible for paying an obligation or debt your partner undertook in the name of the partnership.
How Joint Ventures Differ from Partnerships
In a joint venture, two entities combine their efforts to pursue a common goal. Like in a partnership, joint venturers can be held liable, whether together or separately, for the debts either party incurred in pursuit of the joint venture
However, there are key distinctions between this sort of arrangement and a general partnership:
- The purpose of the joint venture does not have to be about pursuing profit
- The joint venturers each have their own organizations that remain separate entities
- These entities remain separate both before the joint venture begins and after its conclusion
- Generally, a joint venture exists for a limited purpose and a short duration of time; in contrast, a partnership can exist so long as there are partners
Another key difference between a partnership and a joint venture is that there must be a contractual agreement to form a joint venture. For a joint venture to be recognized, everyone involved must have entered into a basic agreement regarding the purpose of the venture. If that is not the case, a general partnership may be recognized in its place.
Do Not Leave Yourself Open to Liability
Whether you engage in a partnership or a joint venture, you open yourself up to personal legal liability. Without a written partnership agreement or well-drafted joint venture contract, you or your business could be on the hook for the obligations the other partner undertook, and creditors can go after your personal assets to recoup any debts.
With help from the knowledgeable and skilled attorneys at Ernst, Brown & Draper, you can protect your legal interests. Our team will negotiate and draft a thoughtful contract or agreement that specifically identifies the roles and responsibilities of each party.
If you take time at the beginning to get the terms of your partnership right, you can eliminate later confusion and potentially stave off costly lawsuits in the event of a dispute. Contact Ernst, Brown & Draper today to learn more about our services.