As an entrepreneur, you’re always looking for ways to provide sustainable growth for your business. While it’s challenging to identify paths of growth, there are many tools available to creative owners, including strategic partnerships and joint ventures. These arrangements can empower you to partner with another business for your mutual, shared benefit and transform your business.
However, before deciding, you must consider significant differences in each arrangement. Here’s what you should know:
Generally speaking, a partnership is when two entities come together for a common purpose to share profits and losses. While strategic partnerships result in a legal entity under Texas law, the partnership is not subject to the same requirements as an LLC or a corporation. This arrangement allows businesses with complementary products or services and a shared consumer base to combine resources and knowledge without forming a new company.
This arrangement could work very well for, say, a yoga studio and a juice company—the juice company wants access to the studio’s clients while the yoga studio wants an additional source of revenue. Together, they can agree that the juice company will rent space in the studio to sell its products. Everybody wins.
However, the strategic partnership faces unique issues. These arrangements do not protect against liabilities that arise from the partnership’s dealings; consequently, LLCs and corporations are ideal entities for strategic partnerships. Additionally, strategic partnerships can be difficult to dissolve, exposing businesses to headaches if things don’t work out.
Joint ventures also involve two entities contributing resources and experience to a common goal. Unlike strategic partnerships, formal contractual relationships govern joint ventures. Distinct aspects of a joint venture, like terms, the end date, and each party’s commitment, must be formalized. Thus, the joint venture creates a close arrangement that can enable long-term, stable growth.
Companies who recognize that it’s better to share an opportunity than miss out altogether gravitate towards joint ventures. Oil and gas companies pool their resources in joint ventures to develop assets that they could not cultivate alone. Everybody gets a piece of the pie.
But joint ventures also face issues. The parties might disagree on how to operate the venture. Misalignment of expectations caused by different kinds of contributions to the venture can cause one party to accuse the other of taking advantage of the situation. These issues can lead to debilitating tension and weak leadership and undermine the venture’s success. Additionally, the venture must have separate liability protection naming both parties as secondary beneficiaries. Each party should also maintain independent liability protection.
Before you choose between a strategic partnership and a joint venture, consult with legal counsel.
Counsel can help you every step of the way, studying your needs and goals, recommending a solution, navigating nuance, and protecting you from shady deals. Your attorney will make sure that your business structure is sound--and your liability insurance is active. Once you find an opportunity, she will perform due diligence by examining the company’s structure, reviewing its books and records, confirming its management experience, inspecting its liability protection, and ascertaining its financial health. Then she can help you negotiate the agreement and form the partnership or venture.
Once it’s all said and done, you’ll be able to focus on your new opportunity, confident that you've protected your interests.
Interested in forming a strategic partnership or joint venture? Have you had one in the past? Open up your business to new growth without headaches. Schedule a consultation to explore your business’s options.