This post is based on a Quora question about legal / business terminology that I answered recently. ? Q. What is the difference between a joint venture and a strategic alliance.
A. A joint venture involves creating a new entity in which the equity is shared by the participants.
A strategic alliance is an agreement by which the participants pursue an objective while remaining independent organizations.
The difference is whether a new legal entity is created. This makes it essential that correct terminology be used when describing a relationship between businesses.
Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
This post uses a real-life example to explain how an unintended partnership is created and why it can be a problem.
Client was one of two founders of a website. She provided content; Co-founder developed, maintained and promoted the site.
Client and Co-founder had been working together for three months when Co-founder presented a business agreement that had been prepared by his paralegal friend. Client asked that I review the agreement on her behalf.
I saw right away a problem that frequently arises in this situation: The parties were characterized as participating in a joint venture under which they would split earnings from the site. The problem arises because under California Corporations Code Section 16202(c)(3), subject to certain exceptions (see discussion below), “[a] person who receives a share of the profits of a business is presumed to be a partner in the business”. This is true even if the parties did not intend to form a partnership (Section 16202[a]), in which case they have created an unintended partnership.