Differences Between Equity-Based Joint Venture and Contractual-Based
Joint Venture
Aspect Equity-Based Joint Venture Contractual-Based Joint
Venture
Definition A joint venture where A joint venture based on a
partners form a new entity contractual agreement
and share ownership without forming a new
equity. entity.
Legal Entity Involves the creation of a Does not involve forming a
separate legal entity separate legal entity.
(company or partnership).
Ownership Partners hold equity shares Partners collaborate based
in the newly formed entity. on contract terms without
ownership in a common
entity.
Duration Usually long-term, as the Can be short-term, based on
entity continues operations the duration of the project
over time. or contract.
Capital Investment Requires substantial capital May require less capital, as
investment from all partners contribute
partners. resources directly.
Control and Management Managed jointly by the Governed by the terms of
equity holders based on the contractual agreement.
their stake.
Liability Liability is limited to the Partners may have specific
equity invested in the joint liabilities as per the
entity. contract terms.
Profit Sharing Profits are distributed Profits or benefits are
according to equity shared based on contract
ownership. terms.
Legal Complexity Involves complex legal and Simpler to set up as it
regulatory procedures to avoids the need to register a
establish and operate. new entity.
Examples Two companies forming a Companies collaborating on
joint subsidiary to enter a a specific project like R&D
new market. or construction.
