Joint Venture Agreement FAQ - Canada


What is a joint venture?

A joint venture is usually limited in scope to a single project or is limited in duration to a specific time frame. In addition, although the members of a joint venture may share the burden of costs in the venture, each member would market the product in their respective market sector. For example: Two related companies may work together in a joint venture to research and develop a specific product but once the product is complete, each member will take the resulting product to their respective marketplace or client base to be marketed and sold for the exclusive profit of that individual member. In this case, a member would not share in the profits of another member.

What is the purpose of a joint venture agreement?

The purpose of a joint venture agreement is to identify the terms of the agreement between the members. A joint venture agreement should outline the project or object of the joint venture, the contributions (financial and operational) and obligations of each member, the duration of the joint venture, the management of the joint venture, and the distribution of any revenues or expenses of the joint venture.

What is the difference between a partnership and a joint venture?

As described above, a joint venture is usually limited in scope to a single project or is limited in duration to a specific time frame and, although the members of a joint venture will share the burden of costs in the venture, profits will be managed by each member. This differs from a partnership where partners share directly in a common cost and profit pool. For example, two friends form a partnership when they pool their resources and start a retail store and pay their bills and share profits out of a common cash flow.

Depending upon your jurisdiction there may be tax benefits for a joint venture over a partnership where a member of a joint venture may be treated differently from a partner in a partnership.

It is also important to distinguish your joint venture from a partnership for liability reasons. In a joint venture the members are generally liable only for a issues relating directly to the single project of the venture. In a partnership, the partners are jointly and severally liability for all debts of the partnership. This means that a partner can be responsible for the entire debts of the partnership if the other partners are unable to pay their share. This also means that as a partner in a partnership, you are fully liable for any actions or commitments made on behalf of the partnership by any other partner regardless of whether you knew of or agreed to it.

 


 

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