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Joint venture agreements [Startups
Posted on February 22, 2013 @ 10:52:00 AM by Paul Meagher

According to Revenue Canada, a Joint Venture is defined as:

An arrangement where two or more persons (participants) work together in a limited and defined business undertaking. Ordinarily, all participants of the joint venture contribute assets, share risks, and have mutual liability.

A joint venture agreement is not a continuing relationship between participants. For example, the venture may be for one specific business project. Once the project is completed, the joint venture ceases to exist.

A joint venture is not considered a "person" for registration purposes, whereas a partnership is. Therefore, a partnership can have a BN; a joint venture cannot. A joint venture is limited in scope; a partnership is generally an ongoing business relationship that exists between persons carrying on common business.

A joint venture agreement is simply a framework for parties to work together. It doesn't require a business number, it doesn't own anything, and it doesn't pay taxes. The individuals involved own their own assets and share in the revenue generated from those assets after expenses. The venturers report the income from the joint venture on their personal tax filings. Because the joint venture does not own assets, the Capital Cost Allowance is claimed by the individual venturer who owns the assets. The simplicity of a joint venture means that it is easy to setup and easy to dissolve (which can be good or bad depending on the situation).

Joint venture agreements are common in farming where, for example, an individual owning land and equipment might partner with a farmer who supplies the labor and management required to grow a cash crop. The Ontario Ministry of Food and Agriculture has a useful factsheet on Farm Business Joint Ventures that can be consulted to see practical examples and considerations in setting up and doing the accounting for a joint venture.

If you are thinking about starting up a business, one option is to setup a joint venture with another person or company for the purposes of jointly maximizing your individual skills and resources.

Because "the whole is often greater than the sum of its parts", a joint venture agreement can form the basis of a profitable business relationship. What one person can do with alot of effort and inefficiency, two people might do quickly and efficiently if they contribute complimentary skills and resources. On Dragon's Den we see angels look for ways in which the resources and capabilities they have might complement what the entrepreneur is bringing to the table. In such cases, it would be interesting to know whether the final deals that are formulated between the dragons and the entrepreneur are setup as partnerships or joint venture agreements.




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