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WHAT IS A JOINT VENTURE AGREEMENT?
In Canada, a joint venture is not legally recognized as a legal entity or defined under any legislation. In common business terms, a joint venture refers to two or more individuals or entities who pool their resources to collaborate on a business venture. Generally, joint venture agreements expressly include a clause to the effect that the parties to the joint venture do not wish their relationship to be construed as a partnership. Although joint ventures are not clearly recognized by Canadian or Ontario law as a business vehicle, there is a trend toward increasing recognition of joint ventures, separate and apart from partnerships by Canadian courts.1
A joint venture agreement is a legal document that outlines the joint venture’s objective and establishes the relationship between the parties entering the joint venture. The joint venture agreement will identify the parties, it will set out the terms and conditions of the joint venture, the financial contribution of each party, the objective of the joint venture, the roles and authority of the parties, how revenue and debt are divided among the parties, how disputes are to be resolved, and conditions that may give rise to the termination of the joint venture agreement. A well-drafted joint venture agreement can help to mitigate conflict among the parties of the joint venture thereby reducing the likelihood of future litigation among the parties.
An example of when a joint venture agreement may be used would be when two construction companies enter into a joint venture to finish a new-build subdivision whereby Company A builds the houses on the west side of the street and Company B builds the houses on the east side of the street. By entering into a joint venture agreement, each party is completely responsible for their own business activities. Joint ventures may be advantageous for the parties involved as it may enable the parties to negotiate better terms from contractors, suppliers, and vendors since they are buying materials and services for a larger combined project.
If you are planning on entering into a joint venture agreement with another party, contact us today to set up an initial consultation during which a business lawyer can answer any questions you may have about joint ventures.
Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.
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Government of Canada: Distinguishing Between a Joint Venture and a Partnership for the Purposes of the Section 273 Joint Venture Election
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.
