November 29, 2022
Disclaimer: We are not a law firm and cannot give legal advice. The following is information to be used at your discretion. If you need legal advice, please seek an attorney!
So, you’ve decided to partner up with someone on your latest adventure in business. That’s exciting! Whether you’re starting a totally new business or just partnering up on a specific project, it is nice to have someone to help you carry the load.
But you might be wondering… what sort of legal agreement should you have with your new partner? The truth is: Not every project you start with a partner requires you to start a whole new business.
You might be working on a joint venture, rather than a whole new business. And, depending on which type of project you’re starting, a joint venture and an LLC are two vastly different things.
While we can’t tell you exactly which one you should choose without knowing your specific project, partnership, and goals, we can break down the differences between a joint venture and an LLC so you can decide which is right for you.
When you’re hiring a freelancer, team member, or agency, you’re not sharing any profits with them. They’re delivering an agreed-upon set of work per client or project, and you’re paying them an agreed-upon fee (this may be flat or hourly).
Additionally, you’ll get the final say on any deliverables, decisions, and communication. If you’re hiring a freelancer, make sure that both of you are protected by using our Independent Contractor Template.
But when you’re working with a partner and creating a joint venture, the two of you share profits — and often split the workload without upfront payment. You’re not paying your partner an agreed-upon fee or salary, but rather a percentage of the profits and revenue after a project has launched or the business starts making money.
A partner or joint venture will be a decision-making power as well. Unlike relying on insight from team members, your partner should have a certain level of equal say in the final decisions and deliverables to your clients.
Have you decided that what you’ve got IS in fact a partnership and not a hiring situation? Cool.
When you bring in a partner for a joint venture or a new LLC, you share the risk and the reward. However, you still need to make sure you have the right contracts and legal protections in place for both of you.
Unsure what a joint venture is? The boring definition: “a business arrangement in which two or more parties agree to pool their resources to accomplish a specific task.”
We like to think of a joint venture as a project that has a clear beginning, end, and goal. For example, you might host a JV webinar with the goal of promoting someone’s new program to your audience — and also get a commission for yourself. Or you might co-host a coaching program where you split profits based on each coach’s time with members.
Each of these have a clear start and end date — which is different from an LLC! This is more of a brand collaboration, which means you’ll want to have a brand collaboration agreement!
But if your project doesn’t have a clear end or beginning, and you’re creating something from scratch together that may take a while to earn revenue from, you’re likely working on an LLC basis.
What’s an LLC? An LLC (or Limited Liability Company) is a business structure that turns your work operation into its own legal entity. The owner/s (or “member/s”) manage their business assets, debts, and other liabilities solely under the umbrella of the business itself.
Basically, you’re putting that official boundary between your personal life and your professional operation. In the eyes of the law, your LLC has its own assets and liabilities, so if anything goes wrong, they can’t target your (or your partner’s) personal assets as compensation.
Decided that filing an LLC for your partnership is best? Here’s how to do that. You’ll also want to have an LLC operating agreement in place to make sure you and your partner know exactly what to expect from the other (and so nobody gets hurt if things go sideways).
If your joint venture is more than a one-off event, like a webinar or workshop, it’s probably a good idea to form an LLC with an operating agreement.
This means that you are legally recognized as a business, and also have a contract with your new partner stating the scope of your new business, responsibilities, profit share, financial responsibilities, and more.
If you’re currently thinking about creating an LLC with a partner(s), our LLC Operating Agreement Contract Template is the perfect place to start!
This template includes a clearly laid out plan for your assets (now and in the future), what to do if your partner splits or goes MIA, and attorney-reviewed legal-ese that ensures you and your new partner are completely protected.
If you’re not sure an LLC is what you need, and instead you just want coverage for a one-off partner project, check out our Brand Collaboration Agreement.
This template sets clear expectations of your relationship with your brand partner from the beginning by defining timelines, revision guidelines, and what exactly the brand can or cannot do with the materials you create together. This is also really helpful for influencers!
Whether you’re starting an LLC or a joint venture, we wish you and your partner(s) the best of luck.