Question: In what ways are joint ventures and partnerships alike?
Answer: Joint ventures and partnerships share many characteristics. A partnership where two or more individuals or entities join together for a particular “short term” purpose is sometimes called a joint venture. In a partnership or joint venture, each partner has equal ability to legally bind the entire entity. A partner can represent the whole organization in the normal course of business, and his or her legal actions on behalf of the partnership (in this case, the joint venture) create legal obligations.
Example: John’s Produce, Inc., and Helen’s Packaging Co. form a joint venture to sell prepackaged salad kits. Helen’s Packaging purchases new bag sealing equipment for the joint venture without receiving JPI’s approval. The packaging company’s status as a partner gives it the ability to bind the entire venture even without the other company’s consent. The equipment company can enforce the purchase agreement against the entire venture because Helen’s Packaging had the apparent authority to bind the venture.
While it is legal to limit the powers of individual partners through a partnership or joint venture agreement, those agreements do not bind the rest of the world. Since businesspeople outside of the partnership have no knowledge of the limitations, they are entitled to rely on the apparent authority of an individual partner as determined by the usual course of dealing or customs in the trade.
Individual members of a partnership or joint venture may face liability for the actions of the partnership or the joint venture. However, new limited liability partnership laws and corporate form options for joint ventures may reduce this risk.