Two or more entities may wish to engage in a project together. Business, legal and tax issues immediately arise. This article does not deal with tax issues.

Some issues that arise are as follows:

1. what will the parties contribute to the project?

2. what will be the responsibilities of the parties?

3. how will the project be controlled?

4. how will decisions be made?

5. what will the parties receive from the project?

6. what happens when the project is complete?

7. how is the relationship between the parties terminated in different situations?

8. if property is to be obtained, how will title to the property be held?

9. how will third party liability be dealt with?

These issues can be addressed, in part, by the choice of the appropriate legal entity to be used in respect of the project. Tax issues will also determine the choice of the legal entity. This article will only deal with non-tax considerations.

Essentially the parties to the project have a choice between 4 legal entities: corporation, partnership, limited partnership and joint venture.

If the parties are only interested in a relationship for the duration of the one project the options of incorporation and partnership may not be desirable. In many cases a joint venture is chosen for this reason and for tax reasons.

If the parties are not careful however, they may inadvertently form a partnership. Under the Partnership Act, parties that carry on business together with a view to profit may be deemed to be a partnership. If the parties are deemed to be a partnership, the provisions of the Partnership Act will apply. Absent agreement to the contrary, many of the issues set out above will be answered by the provisions of the Partnership Act. These provisions may not be what the parties desire. Further, the provisions of the Partnership Act pertaining to the liability of partners to one another and to third parties may be particularly objectionable. A partnership agreement allows the partners to "contract out" of the implied provisions of the Partnership Act to a certain extent. Generally speaking, partners cannot in a partnership agreement affect the rights of third parties.

A joint venture agreement between the parties is another way of avoiding the implications of the Partnership Act. In such an agreement the parties may expressly provide that they are not partners. Further, they may deal with the above listed issues in a way that is different from the structure of the Partnership Act. Liability to third parties may or may not be affected by the existence of a joint venture agreement depending on a variety of factors.

Partnership agreements and joint venture agreements may be complicated. It is strongly recommended that parties seek legal and tax advice before entering into either a partnership or a joint venture arrangement.