Joint Venture vs Partnership – CORPORATE LAWYERS CALGARY
We often see clients who use the terms “joint venture” and “partnership” interchangeably. Although their meanings are quite similar, they are not treated the same in law.
For instance, the Partnership Act defines “partnership” as the relationship between two or more persons who are “carrying on a business in common with a view to profit” (Partnership Act, c P-3, Section 1 (g)). In determining whether a partnership does or does not exist, the court will consider numerous factors objectively, including the following:
- In determining whether a partnership does or does not exist, regard shall be had to the following rules:
(a) joint tenancy, tenancy in common, joint property, common property or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share profits made by the use of it;
(b) the sharing of gross returns does not of itself create a partnership, whether the persons sharing the returns have or have not a joint or common right or interest in property from which or from the use of which the returns are derived;
(c) the receipt by a person of a share of the profits of a business is proof, in the absence of evidence to the contrary, that that person is a partner in the business, but the receipt of the share, or of a payment contingent on or varying with the profits of the business, does not of itself make the person receiving the share or payment a partner in the business, and in particular:
(i) the receipt by a person of a debt or other liquidated amount by instalments or otherwise out of the accruing profits of a business does not of itself make that person a partner in the business or liable as a partner;
(ii) a contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as a partner;
(iii) a person who is a surviving spouse or adult interdependent partner or child of a deceased partner and who receives by way of annuity a portion of the profits made in the business in which the deceased person was a partner does not by reason only of that receipt become a partner in the business or liable as a partner;
(iv) the advance of money by way of loan to a person engaged or about to engage in a business on a contract with that person that the lender shall
(A) receive a rate of interest varying with the profits, or
(B) receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as a partner, so long as the contract is in writing and signed by or on behalf of all the parties to the contract;
(v) a person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by the person of the goodwill of the business is not by reason only of that receipt a partner in the business or liable as a partner. RSA
On the other hand, the Court in Westcan Malting Ltd. v The Queen, 1998 CanLII 319 (TCC), adopted the following definition of joint venture from Volume 2 of Williston on Contracts, 3rd ed (1969) p 554: “The joint venture is an association of two or more persons based on contract who combine their money, property, knowledge, skills, experience, time or other resources in the furtherance of a particular project or undertaking, usually agreeing to share the profits and the losses and each having some degree of control over the venture”.
Despite the similarities in their definitions, there are a number of decisions that say a joint venture is not a partnership. For example, in Gironella v Berndt, 1982 ABCA 139, the Court of Appeal held that the parties’ relationship at issue was not a partnership but was in the nature of a lone business joint venture, with some recreational returns anticipated by both parties. In Milroy v Klapstein, 2003 ABQB 831, the Court also noted:
[21] Considerable argument was directed to whether the arrangement in question was a “partnership”. I have concluded that it was not. The Partnership Act, R.S.A. 2000, c. P-3 defines a partnership as “carrying on a business in common with a view to profit”. This was more akin to a joint venture, as the efforts were directed to one discrete project rather than an ongoing business. The parties never intended to be in business together and to share profits in the conventional sense. They merely intended to be co-owners until such time as the master plan was in place, and the lands were divided… Once the lands were split, each party’s corporation was to proceed on its own without any sharing of profits….
Further, while the statute prevents a partner from carrying on a business of the same nature as and competing with that of the partnership, without first obtaining the consent of the other partners, such a statutory protection is not available for joint ventures.
In Roorda v MacIntyre, 2010 ABCA 156, the Court of Appeal held that a joint venture agreement for the establishment and operation of a closed-end mutual trust fund did not impose a fiduciary duty on the joint venturers to allow one of their number to participate in an additional series of closed-end mutual trust funds established by the other joint venturers. In this case, the Court agreed with the trial judge’s interpretation that the Joint Venture Agreement at issue authorized the parties to conduct other business activities. By disclaiming the creation of a partnership, the agreement effectively excluded the operation of fiduciary duties that might arise from a partnership relationship.
As discussed above, the law treats partnership and joint venture differently, and there are risks associated with using partnership and joint venture interchangeably. Thus, we recommend you speak to a lawyer before entering a partnership or a joint venture to better understand your rights and obligations.
Author: Justin Kwon
