A joint venture occurs when two or more individuals or businesses agree to start a for-profit business. A limited liability company combines the limited liability protection of a corporation with the simplicity and flexibility of a partnership. A number of differences exist between a multi-member LLC and a joint venture in terms of continuity, personal asset protection and formation.
Partners of a joint venture are not required to file documents with the state as a condition of operating. This means there are no filing fees to pay when starting a joint venture. Also, a joint venture does not have to pay annual fees to conduct business in the state where the company is located. A multi-member LLC must file articles of organization, also known as a certificate of organization, with the secretary or department of state. The cost to file articles of organization varies from state to state. Depending on the state of LLC formation, the company may be required to pay an annual fee to conduct business in the state where the company is located.
Read More: Difference Between Joint Venture & Multi Member LLC
Liability is a big difference between a joint venture and an LLC. Members of an LLC have personal asset protection against company debts and obligations. This means a business creditor cannot pursue a member’s home and other personal assets as compensation for business debts. An LLC member’s obligation for business debts does not extend beyond the amount he has invested in the LLC. Partners of a joint venture have unlimited liability for company debts and obligations. This means a business creditor may come after a partner’s personal assets if the company’s assets do not cover the obligation.
Partners of a joint venture report their portion of company profits and losses directly on their personal income tax return. A joint venture does not file taxes with the Internal Revenue Service as a business entity. A multi-member LLC may elect taxation as a partnership or corporation. When the LLC elects taxation as a partnership, the company’s members report profits and losses on their personal income tax return. An LLC that elects taxation as a corporation is subject to double taxation. This means the LLC has to pay taxes on the company’s profits as a business entity, just like a corporation. Members must report distributions received from the LLC on their personal income tax return.
Continuity differs in an LLC compared to a joint venture. An LLC may continue to operate despite changes in management and membership, if the company’s operating agreement contains provisions for continuing the business. A joint venture might end automatically if a partner dies or decides to sell her ownership interest. A joint venture cannot exist when there is only one partner.