Joint venture agreements

A joint venture agreement is a contract in which two or more businesses combine money, assets or expertise for a specific project while remaining separate. It sets contributions, management, profit and loss sharing, IP, deadlock and exit. In BC a joint venture can be contractual or a jointly owned corporation, and an unincorporated venture risks being treated as a partnership.

How BC law treats it

There is no BC statute governing joint ventures as such. A joint venture is usually structured in one of three ways: a contractual joint venture, where the parties co-own assets and share output or costs under an agreement; a partnership, general or limited, under the Partnership Act; or a jointly owned corporation incorporated under the Business Corporations Act (BCBCA), governed by its articles and a shareholders agreement. The Partnership Act matters even for parties who do not intend a partnership. Under s. 2, a partnership is the relationship between persons carrying on business in common with a view to profit. If an unincorporated joint venture meets that test, the parties may be partners regardless of the label, with each liable for the venture's debts and bound by the others' acts within the business. That is why contractual joint venture agreements expressly disclaim partnership, keep title and liabilities separate, and limit each party's authority to bind the others. A jointly owned corporation gives limited liability but brings corporate governance and BCBCA requirements. Joint ventures between competitors must comply with the federal Competition Act. Agreements to fix prices, allocate markets or restrict output are criminal under s. 45, other collaborations may be reviewed under s. 90.1, and a joint venture that involves acquiring a business or assets may require pre-merger notification under Part IX if the size thresholds are met. Key terms in any JV agreement include contributions, management committee and voting, funding calls and dilution, profit and loss sharing, ownership of IP, confidentiality, deadlock resolution, transfer restrictions and exit or buy-sell mechanisms.

What it means for your business

A joint venture lets a BC business take on a project it could not handle alone, such as a development, a resource project or a new market, without a full merger. The structure chosen drives liability, tax treatment, financing and exit. Poorly documented ventures often slide into an accidental partnership, leaving one party liable for the other's debts. Clear deadlock and exit provisions are what keep a failed venture from becoming litigation. Example: A Vancouver developer and a Calgary investment company form a jointly owned BC company to build a mixed-use project. Their shareholders agreement sets funding calls, a management committee, a shotgun buy-sell clause and limits on transfer of shares.

Risks and common mistakes

Starting a project on a handshake, so the courts may find a partnership with unlimited shared liability. Calling the arrangement a joint venture but acting like partners, such as sharing profits from a common business and holding out as one firm. Leaving out a deadlock mechanism for a 50/50 venture. Failing to address what happens when one party cannot meet a funding call. Ignoring Competition Act limits when the partners are competitors in the same market.

Key authorities

Frequently asked questions

Is a joint venture a partnership in BC?

Not necessarily, but it can become one. Under the BC Partnership Act, persons carrying on business in common with a view to profit are partners, whatever they call themselves. A well drafted joint venture agreement disclaims partnership and keeps each party's assets and liabilities separate.

Should a joint venture be set up as a company?

A jointly owned BC company gives the parties limited liability and a clear governance structure through its articles and a shareholders agreement. A contractual joint venture can be simpler and more flexible for tax. The best choice depends on liability, financing, tax and exit plans.

What happens if joint venture partners deadlock?

Only what the agreement provides. Common tools are escalation to senior executives, mediation or arbitration, a casting vote, a buy-sell or shotgun clause, or a right to wind up. Without one, the parties may be left with litigation.

Planning a joint venture? Talk to a Fulcrum business lawyer about the right structure and agreement.