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A joint venture is usually established between two or more organisations for a specific project. A joint venture is generally created when the organisations sign a joint venture agreement, which is a legally binding agreement that is enforceable like any other contract.
Before reading further, read our Guide to Working With Other Organisations, which you can download from our Working with Others topic webpage.
A joint venture is different from:
- a merger - community organisations merge when they agree to join forces permanently to become one legal entity. In a joint venture arrangement, the organisations remain separate legal entities and combine their resources for a particular (often temporary) project.
- a ‘fee-for-service’ arrangement - in a fee-for-service arrangement one organisation provides a service or product to the other for a fee. In a joint venture arrangement the organisations agree to work on a project together, and then to share in the product or benefits when it is completed.
- a partnership arrangement - although the term ‘partnership’ is often used loosely in the community sector, it has a technical legal meaning. In particular, in a partnership the two or more organisations have joint interests in the project and are jointly and severally liable for the expenses of the project. In a joint venture, the organisations usually have defined interests and are usually liable for their own debts, which they incur individually.
When is a joint venture agreement appropriate?
A not-for-profit organisation may use a joint venture agreement to work with other organisations for the purposes of fundraising, service delivery or advocacy.
- expansion of the organisation’s ability to provide products or services
- access to resources or staff
- a temporary commitment
- the potential to lose your income tax-exempt status
- a risk of conflict
- not seeing eye to eye with the other organisation
However, given there is no settled definition of a joint venture, and a joint venture agreement may cover many arrangements, we suggest you seek legal advice about whether a joint venture is a suitable arrangement for your particular project.
If you are an income tax exempt organisation, you may need to seek legal advice before entering into a joint venture arrangement. Depending on the nature of the activities involved, becoming a party to a joint venture agreement may jeopardise your income tax-exempt status.
Depending on the circumstances you may be advised not to enter into a joint venture arrangement, or that the arrangement will be appropriate provided the joint venture agreement is drafted in a way which complies with various tax and other laws.
What are my obligations under a joint venture agreement?
Obligations under joint venture agreements are set out in the joint venture agreement and also arise through general (common law) obligations.
Joint venture agreements usually contain terms about:
- what each organisation will initially contribute to the joint venture
- the acts each organisation will be obliged to perform throughout the duration of the joint venture
- reporting obligations
- governance of the joint venture
- the process that the organisation will follow if there is a disagreement or dispute between the joint venture parties, and
- what happens at the end of the life of the joint venture or if one organisation decides to leave
Your general obligations towards the other organisation (or organisations) involved in a joint venture may not be as obvious as those included in the joint venture agreement. These obligations can arise from common law and your special relationship with your joint venture partner.
In certain circumstances, you may be required to avoid conflicts of interest with joint venture activities and account for any personal or 'one-sided' gain arising out of your position as a joint venturer, unless the other joint venturer has allowed you to take up a particular opportunity.
The following fact sheet has further information about joint ventures including:
- what is a joint venture?
- when a joint venture is appropriate, and
- your organisations obligations under a joint venture agreement
Partnerships are regulated separately by each state in Australia, and each state has its own laws. The laws are similar, but there are a few differences. A partnership is defined by each state's legislation as the relationship which exists between persons carrying on a business in common with a view to profit. Partnerships for not-for-profit organisations are different to joint ventures, because generally the partners are jointly and severally responsible and liable for the partnership's activities. In simple terms, this means that one partner could be responsible and liable for all of the partnership’s activities alone if other partners are involved or unable to pay.
There are certain rules about interests and duties of partners, which are set out in the state-based legislation.
There are three main types of partnerships - general, limited and limited liability.
General partnerships are where all the partners are equally responsible for the operations and management of the partnership and each partner could be responsible and liable for all of the partnership’s activities alone if other partners are involved or unable to pay.
Limited partnerships have two types of partners - general partners and limited partners. A general partner is described above and has more responsibility and liability compared to a limited partner that will only be liable to the amount of agreed contribution to the partnership.
Limited liability partnerships are normally used for larger professional service businesses and are generally not suitable for not-for-profit organisations.
If two or more organisations are considering partnering for a project, it's a good idea to enter into a formal partnership agreement that clearly sets out the terms of the partnership. You will need the assistance of a lawyer to draft a partnership agreement.
A partnership agreement will normally include the following:
- the names of the partners
- the obligations and liabilities of the partners to contribute to money, assets and any project costs of the partnership
- how distribution of donations or assets will be managed
- how decisions of the partners will be made
- the management and administration of the partnership including annual meetings
- any powers delegated to committees and the responsibilities of those committees
- how the partners will resolve disputes
- restrictions on the sale of a partnership interest, and
- the duration of the partnership and termination of the partnership
Partners owe each other the duties and obligations described in the partnership agreement, however they are also expected to exercise their rights and powers in good faith to benefit the partnership.
General obligations towards other partners may not be as obvious as those included in the partnership agreement. These obligations can arise from common law and the special nature of the partner relationship. Additional duties include a duty to act for the common good – a partner should not put themselves in a position of conflict without their partner's consent (ie. enter into business in competition to the partnership).
This kit is designed to be used by small to medium organisations in a workshop context with other organisations, or within their own organisations (for example, in discussion between the management committee and staff) to resource a step by step planning process to form a partnership.
While the focus of this resource is on the health sector the general principles of the tools apply across sectors.