Partnership or Joint Venture?

The Difference between Partnership and Joint Venture

1. JVs are usually formed for a specified period of time for limited purpose.

A partnership, exists until it is dissolved and it is a less flexible structure than a joint venture.

2. A partnership is an ongoing relationship between parties. It is usually limited to 2-20 partners and it not a separate legal entity and hence, the partners are jointly and severally responsible for the activities of the partnership. Consequently, one partner will be liable for the partnership’s debts if the other partner(s) cannot pay.

3. A JV usually consists of two or more individuals or companies where parties will work together towards the same strategic goal while maintaining their separate businesses/entities. Each of the parties to the joint venture will also be responsible for their debts incurred in the project and, at the end of the project, will usually divide the profits and debts between themselves.

4. JV higher start-up cost and Partnership lower start-up cost. Partnership can quickly change business structure as the business affairs between the partners are private as it is regulated under the Registration of Business Act (less strict) whereas JV is governed by Companies Act 2016 and the parties must clearly understand the objective, terms and goals of the venture to avoid conflict with the business partners

5. Partnership is unlimited liability usually unless it is registered under the Limited Liability Partnerships Act 2012. (Refer to Appendix A) Whereas JV is limited liability.

6. JV is seeking investment without borrowing money, provide access to greater resources to the parties involved in the venture and gaining access to specialist staff and technology whereas business partnership will usually have access to more capital and can borrow more money due to the number of parties involved.

7. Partnership

· Partners are liable for this profit under personal income tax. The partners are taxed on their chargeable income at rates ranging from 2% to 26%, after the deduction of tax relief.

· Equally share of profits and losses;

· Partners cannot withhold the interest of the capital invested in the partnership;

· The business management can be done by all partners;

· A salary is not entitled for partners;

· An 8% interest rate applies to loans and monetary advances made by partners to the business;

· The majority of partners is needed for reaching decisions; the consent of all partners is necessary for the change of the business nature;

· New partners can enter the business by an agreement; this is also required for leaving a partnership;

· Books and accounts must be kept at the principal base of the business.

8. JV

· Foreign businessman can access the Malaysian market through setting up a joint venture with a Malaysian partner, in which case the local company will have at least 50% ownership over the respective company.

· JV is taxed as an entity and taxed is not charged at the JV partners.

· Responsible for their debts accrued and profit is typically divided between the parties for contractual unincorporated JV.

· Voting arrangements and share transfers in accordance with the JV Agreement.

· Independence as a contractual joint venture does not involve any structural changes and the parties remain as entirely independent contractors, with less likelihood of being liable to a third party.

· Corporate joint ventures or partnership joint ventures, where the vehicle itself will be subject to tax for contractual incorporated JV.

· it would not be possible to save tax by accumulating income within the jv and deferring the distribution of profits.

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