Collaboration, Partnership & Joint Ventures in Nigeria: The Bright Line

Collaboration, Partnership, and Joint Ventures are forms of business alliances, but they differ significantly in their structure, purpose, and legal implications. Each of these business outfits serves different purposes and is suited for different types of transactions and business.

In this article, we will delve into the nuances of these alliances and their characteristics, providing examples to illustrate their distinctions and appropriateness in everyday transactions.

Collaboration

Collaboration involves two or more parties working together to achieve a common goal or objective while retaining their autonomy and separate identities.

It often involves sharing resources, expertise, and knowledge to create value that each party cannot achieve individually without forming a long-term commitment or assuming shared liabilities.

Key Features of a Collaboration

Autonomy: Each party in a collaboration retains its autonomy and independence. While working together towards a common goal, participants maintain control over their own resources and decision-making processes.
Short-Term Focus: Collaborations are typically short-term and task specific. Once the project is completed or the objective is achieved, the collaboration may dissolve, and participants may pursue other opportunities independently.
Flexibility: Collaborations are adaptable and can be tailored to suit per-need projects. They allow participants to come together temporarily to address a particular need or leverage an opportunity.

From a legal standpoint, collaborations often lack a formal structure as they neither constitute a merger nor create a distinct legal entity in themselves (as is the case in Partnerships and Joint Ventures) instead, they are typically based on formal agreements (collaboration agreements) or contracts outlining the terms of cooperation between parties.

Example of a Collaboration:

A software development company collaborating with a design agency to create a new mobile application. The software company provides the technical expertise, while the design agency contributes creative input. Both entities maintain their independence and are only temporarily aligned for the specific project.

Collaborations are best suited for short-term tasks or projects that require diverse skill sets, resources, or perspectives.

Partnership

A partnership is a formal business structure in which two or more individuals or entities agree to share profits, losses, and managerial responsibilities.

Partnerships can take various forms, including general partnerships, limited partnerships, and limited liability partnerships (LLPs), each with its own legal and operational implications.

Key Features of a Partnership

Shared Ownership: Partnerships involve shared ownership of the business entity. Each partner contributes capital, labor, or expertise and shares in the profits and losses of the partnership.
Joint Decision-Making: Partnerships require joint decision-making among partners on key business matters. Partners have a fiduciary duty to act in the best interests of the partnership and their fellow partners.
Liability: In general partnerships, partners have unlimited personal liability for the debts and obligations of the partnership. Limited partnerships and LLPs offer partners limited liability protection to varying degrees. A Limited Liability Partnership is one of the innovations of the Companies and Allied Matters Act, 2020. The limitation of the liability of partners is usually stipulated in the Deed of Partnership executed between the partners.
Continuity: Unlike collaborations, Partnerships are not short-spanned, they can have continuity beyond the lifespan of individual partners, particularly if the partnership is registered as an LLP with the Corporate Affairs Commission (CAC)

Example of a Partnership

Two market traders forming a partnership to open and run a supermarket. They share the business’ profits, losses, and decision-making responsibilities while also pooling their resources and expertise.

Partnerships are well-suited for businesses where the partners have complementary skills and are willing to share both the rewards and risks of the venture. It is also suitable for businesses to be operated between couples.

Joint Venture

Joint ventures (JVs) are commercial enterprises undertaken jointly by two or more parties. They are standalone business entities created by two or more parties to pursue a specific business opportunity or project for a finite period.

Unlike Partnerships and collaborations, Joint ventures involve the creation of a separate legal entity (also known as a special purpose vehicle) specifically to manage the joint undertaking usually with its own management structure and governance mechanisms.

Key Features of a Joint Venture

Special Purpose Vehicle: Joint ventures establish a separate legal entity through the creation of an entity to oversee the joint venture activities. This entity may have its own management structure and governance mechanisms.
Shared Control and Ownership: Joint ventures involve shared control and ownership between the participating entities. Each party contributes capital, resources, or expertise and holds a stake in the joint venture entity.
Limited Duration: Joint ventures are often established for a specific project or venture and may have a limited duration. Once the project is completed or the objectives are achieved, the joint venture entity may be dissolved.
Risk Sharing: Joint ventures allow parties to share risks, resources, and rewards associated with the joint undertaking. By pooling their strengths and capabilities, participants can mitigate individual risks and capitalize on shared opportunities.

Example of a Joint venture, two pharmaceutical companies forming a joint venture to develop and market a new drug. The joint venture operates independently of its parent companies and assumes its own risks and liabilities.

Once the project is completed or the agreed-upon objectives are achieved, the joint venture may be dissolved, or the parties may choose to extend the collaboration.

Joint ventures are ideal for big businesses and corporations looking to share resources and risks for a specific project while maintaining a degree of independence from their parent companies.

In summary, Collaboration, Partnership and Joint Ventures can be differentiated by:

Structure: Collaboration is typically informal and project-specific, while partnerships involve a more formal agreement between parties to share profits, losses, and responsibilities. Joint ventures on the other hand create a separate legal entity for a specific business opportunity or project.

Duration: Collaborations are often short-term and task-specific, while partnerships and joint ventures can be long-term arrangements, depending on the objectives of the parties involved.

Liability: In partnerships, partners share both profits and liabilities, while in joint ventures, the liability is typically limited to the assets of the joint venture entity. Collaborations may involve shared risks but usually do not entail shared liabilities to the same extent as partnerships or joint ventures.

Decision-making: Partnerships typically involve shared decision-making among partners, while joint ventures may have their own management structure and governance mechanisms. Collaborations may have less formalized decision-making processes, depending on the nature of the collaboration.

In conclusion, collaboration, partnership, and joint ventures represent different levels of cooperation and integration between businesses, each with its benefits and considerations.

Understanding the distinctions between these business outfits is essential for businesses seeking to form strategic alliances and pursue mutually beneficial opportunities in Nigeria.

Berkeley Legal is a leading business law firm in, Nigeria. We provide a comprehensive and sophisticated range of specialized and personalized legal services that are designed to meet the various needs of highly diversified local and international businesses.

If you would like to know more about Collaboration, Partnership and Joint Ventures or structure one, please contact info@berkeleylp.com

The information provided in this article is for general informational purposes only and does not constitute legal advice.