Can a Sole Proprietorship Participate in Joint Ventures?
There is no law that states that individuals who are sole proprietors cannot participate in joint business ventures. However, when you do go into business with another entity, whether that entity is an individual, a partnership, limited liability company or some other entity, you have by default established a partnership. This venture could be part of the business that you once operated as a sole proprietorship or it could be a wholly separate venture, in which case your sole proprietorship business can continue to operate as before.
Other People Are Reading
-
Sole Proprietorships
-
When you establish a business by yourself, but you do not form a separate legal entity for it, you are operating a sole proprietorship. Your business does not pay business income taxes; instead, all the profits and losses "pass through" to your individual income tax return, via Schedule C, Profit or Loss from Business. As a sole proprietorship, there is no legal distinction between your personal assets and those of your business. Liability arising from your business can result in creditors coming after your personal assets. This risk of a lawsuit turning into a devastating personal loss is a major disadvantage of the sole proprietorship as a business entity.
Partnerships
-
A partnership is a joint business venture between two or more entities who form a company in which all have an ownership stake. Any business entity type, including sole proprietors and corporations, may own an interest in a partnership. If a sole proprietor raises capital by attracting another investor, he and his investor now have an ownership interest in a partnership. While there are restrictions on who may own shares in an S corporation, there are no such restrictions on who can own a partnership. An individual may own half of a company, with a corporation owning the other half, for example. Both are partners in a joint venture, though the individual owner may also maintain another business as a sole proprietorship.
-
Liability Issues
-
In a general partnership, each of the partners is jointly and severally liable for lawsuits and other claims against any or all of the other partners. With general partnerships and sole proprietorships, there is no legal separation between your business and personal assets. They are all the same to the courts, and all are available to collectors unless specifically protected by statute. With general partnerships, the risk is even higher: Your personal assets could be at risk if another general partner has a personal claim against him -- even if it has nothing to do with the business. Put simply: If your partner's teenage daughter gets in a car wreck on her way to a basketball game, you could lose your business and your personal life savings.
Options
-
Using entities to separate your personal assets from those of your partners and those of your business can help you mitigate your exposure to litigation risk. By establishing a limited partnership, only the general partner actually running the business is exposed to personal liability. Limited partners cannot lose more than they have invested in the project, though they may not take an active role in managing or running the business. You can also establish a limited liability company, which also provides asset protection while giving you flexibility about whether to be taxed as a corporation or as a partnership. Or you may establish a C or S corporation, which also help limit your personal liability. There are advantages and disadvantages to each entity. You may want to consult an attorney or CPA to explore your options.
-
