Joint Venture versus Partnership
Branch - Subsidiary - Incorporation - Partnership - Joint Venture - License - Franchise
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The legal distinction between a joint venture and a general partnership plays a critical strategic role in determining a business' choice of structure in relation to liability, tax obligations, and long-term structure. While both involve two or more parties collaborating to generate profit, they are distinct legal concepts governed by different rules. A general partnership is defined under provincial statutes (such as the Partnerships Act of Alberta or Ontario) as the relation that subsists between persons carrying on a business in common with a view to profit. In contrast, a joint venture is typically a purely contractual arrangement where parties collaborate on a specific, time-limited project while maintaining their independent legal identities.
One of the most fundamental distinctions lies in the duration and scope of the relationship. General partnerships are usually established for the purpose of running an ongoing, continuous business with no predetermined end date. They imply a high degree of integration between the partners’ commercial lives. Conversely, a joint venture is almost always "project-specific." For example, a Canadian engineering company and a European financing company form a joint venture to construct and deploy a geothermal system. Once the geothermal unit has been deployed, the venture dissolves, allowing both parties to return to their separate operations without the permanent legal entanglements of a partnership.
The issue of liability and agency represents a major risk factor for Canadian entrepreneurs. In a general partnership, every partner is an agent of the firm and their fellow partners. This means one partner can sign a contract that legally binds all others, and every partner is "jointly and severally" liable for the debts and wrongs of the business. If the partnership defaults on a loan, a creditor can pursue the personal assets of any individual partner. In a properly structured joint venture, there is no such inherent agency. Each party is responsible for their own specific contributions and liabilities as defined in their private contract, offering a layer of separation that a general partnership lacks.
From a tax and legal identity perspective, the two structures diverge significantly. Under the Excise Tax Act (Canada), a partnership is treated as a "person" for GST/HST purposes, meaning the partnership itself registers for and collects taxes. However, for income tax purposes, it is a "pass-through" entity where profits and losses flow directly to the partners. A contractual joint venture, however, is not a legal person at all. Each participant in a joint venture accounts for their share of revenues, expenses, and taxes independently. This allows for greater flexibility, as venturers can often claim different capital cost allowances or tax treatments based on their individual corporate tax positions.
Another nuance is fiduciary duty. In a general partnership, partners owe each other the highest duty of loyalty, good faith, and full disclosure. They are legally barred from competing with the partnership or taking "secret profits." While joint venturers also owe duties to one another, these are generally more limited and defined by the four corners of their contract. Because joint venturers often remain competitors in other areas of their business, they rely on the joint venture structure specifically to avoid the broad, all-encompassing fiduciary obligations that come with being "partners in common."
Finally, it is vital to understand the "de facto partnership" risk in Canada. Simply labeling an agreement a "Joint Venture" does not make it one in the eyes of the court. If two parties act like partners (by sharing gross profits, exercising joint control over all operations, and presenting themselves to the public as a single unit) a Canadian court may rule that a partnership exists by law, regardless of the contract’s title. This "characterization risk" can lead to unexpected unlimited liability. Therefore, the distinction often comes down to how strictly the parties maintain their separate identities and how clearly they define the limited scope of their shared project.
As such, when your international business seeks the professional services of an experienced Canadian business lawyer to facilitate its entry into Canada's commercial market, contact our law firm for a confidential initial consultation at 403-400-4092 [western Canada], 905-616-8864 [eastern Canada] or a Chris@NeufeldLegal.com.