As exciting as it is to be viewing a potential property for purchase, details cannot be overlooked of items that may end up costing you in the long run.
Changes to the Condominium Act, 1998 (the “Act”)
Same Closing Day for a Purchase and Sale? Be aware of the risks
We're Hiring !!
Carson Law is actively searching for a full-time Junior Financial Clerk to assist with tasks associated with the financial responsibilities required to complete real estate transactions as well as daily operations. This is the perfect job for anyone looking to enter a rapidly growing firm and continue building their knowledge base.
Title and Real Property
Holding title to real property refers to the interest of a particular individual who has legally recognized ownership of property. More traditionally, title to real property was used to refer to an individual who has the legal right to use the property. Today, title to real property can be held in several different forums.
Tax Concerns and Leased Property
Within a real estate transaction, not all property is transferred in the traditional sense that both the dwelling and the subsequent land are conveyed in fee simple. An increasing number of transactions include purchases where the dwelling is conveyed in fee simple, but the land itself is merely leased to the occupant.
Chattels Versus Fixtures
Condo Purchases and Status Certificate Review
Trust in Real Estate Services Act
Buying and Selling Real Estate on the Same Closing Day
GST/HST New Housing Rebate
Calculating Equalization
Author: Stacey Staios - Articling Student
Edited By: Ryan Carson
If a married couple decides to separate or divorce, both parties are entitled to what is called the equalization of net family property. This means that each spouse is automatically entitled to an equal share of the profits of that marriage. Barring a domestic contract between the spouses, either spouse can apply for equalization of family property under the Ontario Family Law Act (FLA).
Upon the breakdown of the marriage, in order to compensate the spouses fairly for the equal contribution during the marriage, the FLA states that the value of all assets acquired during the marriage will be divided equally. This will require one of the spouses to make an equalization payment to the other, in order to equalize the value of each spouse’s net family property. The purpose of equalization is to recognize that child care, household management and financial input are the joint responsibilities of the spouses and inherent in the marital relationship there is equal contribution.1
The first step in calculating equalization is to determine the valuation date. This date is typically the date of separation and is a fixed date, meaning there is very little discretion for the court to adjust the date. According to section 4(1) of the FLA, the valuation date is the earliest of; date of separation with no prospect of reconciliation, date of divorce granted, date of nullity, date of application for equalization due to improvidence, or day before death. In most cases, the valuation date is the date of separation.
The second step is to determine the net worth at valuation date. Once the valuation date is established, the parties must list all assets they have that would be considered property for purposes of the FLA, including any debts each party has. Some examples that would be considered property include but are not limited to life insurance, severance pay entitlements, partnership interests, future income from a trust and leasehold interests. It is important to note that professional degrees, licenses, and expectation of inheritance are not considered property for the purpose of equalization.
The third step is to determine the net worth at the date of marriage. Any assets owned before marriage are considered a deduction when calculating equalization, excluding the matrimonial home. A rule of thumb suggests that the more money you have coming into the marriage, the higher deductions you will have. The current value of the assets is irrelevant, as deductions are calculated in ‘date of marriage’ dollars.
The forth step is to calculate any exclusions in determining equalization. Any assets acquired during the marriage would be considered an exclusion. This may include property, other than a matrimonial home, that was acquired by gift or inheritance from a third party after the date of marriage. It is important for the spouse to keep their inheritance separate and have the testator (individual leaving the inheritance) specify that any income generated from the inheritance is to be excluded in such circumstances. In addition, a marriage contract entered into by the parties can state that property may be excluded, along with rights to proceeds from life insurance.
The fifth step is to determine the difference between assets on the valuation date and assets on the date of marriage for each party, then divide that number by two. This calculation gives you the net family property, and requires the party with the higher number to pay 50% of the difference to the party with the lower net family property number. The presumption at the end of the calculation is that there will be an equal division of value. However, there are cases where an unequal division of net family property will occur, meaning that there will be a variation from the 50/50 split. For example, if spouse A has calculated a net family property of $100,000, and spouse B has a net family property of $300,000, spouse B will pay $100,000 to spouse A, being 300k-100k=200k/2=100k. The court will only award an unequal payment under section 5(6) of the Family Law Act where the court is of the opinion that an equal split would be unconscionable, having regard to different factors.2 For example, if one spouse was found to be to be recklessly depleting their net family property, the court would intervene and may order an unequal payment in favour of the innocent spouse.
When calculating equalization for the purpose of net family property, it is important to pay attention to specific dates, including the valuation date, the date of marriage, and when items were received, inherited or purchased. It is also important to note section 7(3) of the FLA which sets out limitation periods for when an application can be brought forth by a spouse.3
Upon the breakdown of the marriage, in order to compensate the spouses fairly for the equal contribution during the marriage, the FLA states that the value of all assets acquired during the marriage will be divided equally. This will require one of the spouses to make an equalization payment to the other, in order to equalize the value of each spouse’s net family property. The purpose of equalization is to recognize that child care, household management and financial input are the joint responsibilities of the spouses and inherent in the marital relationship there is equal contribution.1
The first step in calculating equalization is to determine the valuation date. This date is typically the date of separation and is a fixed date, meaning there is very little discretion for the court to adjust the date. According to section 4(1) of the FLA, the valuation date is the earliest of; date of separation with no prospect of reconciliation, date of divorce granted, date of nullity, date of application for equalization due to improvidence, or day before death. In most cases, the valuation date is the date of separation.
The second step is to determine the net worth at valuation date. Once the valuation date is established, the parties must list all assets they have that would be considered property for purposes of the FLA, including any debts each party has. Some examples that would be considered property include but are not limited to life insurance, severance pay entitlements, partnership interests, future income from a trust and leasehold interests. It is important to note that professional degrees, licenses, and expectation of inheritance are not considered property for the purpose of equalization.
The third step is to determine the net worth at the date of marriage. Any assets owned before marriage are considered a deduction when calculating equalization, excluding the matrimonial home. A rule of thumb suggests that the more money you have coming into the marriage, the higher deductions you will have. The current value of the assets is irrelevant, as deductions are calculated in ‘date of marriage’ dollars.
The forth step is to calculate any exclusions in determining equalization. Any assets acquired during the marriage would be considered an exclusion. This may include property, other than a matrimonial home, that was acquired by gift or inheritance from a third party after the date of marriage. It is important for the spouse to keep their inheritance separate and have the testator (individual leaving the inheritance) specify that any income generated from the inheritance is to be excluded in such circumstances. In addition, a marriage contract entered into by the parties can state that property may be excluded, along with rights to proceeds from life insurance.
The fifth step is to determine the difference between assets on the valuation date and assets on the date of marriage for each party, then divide that number by two. This calculation gives you the net family property, and requires the party with the higher number to pay 50% of the difference to the party with the lower net family property number. The presumption at the end of the calculation is that there will be an equal division of value. However, there are cases where an unequal division of net family property will occur, meaning that there will be a variation from the 50/50 split. For example, if spouse A has calculated a net family property of $100,000, and spouse B has a net family property of $300,000, spouse B will pay $100,000 to spouse A, being 300k-100k=200k/2=100k. The court will only award an unequal payment under section 5(6) of the Family Law Act where the court is of the opinion that an equal split would be unconscionable, having regard to different factors.2 For example, if one spouse was found to be to be recklessly depleting their net family property, the court would intervene and may order an unequal payment in favour of the innocent spouse.
When calculating equalization for the purpose of net family property, it is important to pay attention to specific dates, including the valuation date, the date of marriage, and when items were received, inherited or purchased. It is also important to note section 7(3) of the FLA which sets out limitation periods for when an application can be brought forth by a spouse.3
Articles written by Stacey Staios:
Testamentary Capacity Aggravated and Punitive Damages Leaves of Absence in Ontario Co-Parenting In The Age of a Pandemic Corollary Relief Disability Accommodation in the Workplace
Estate Planning: A How To Guide Should You Consider A Cohabitation Agreement? What Is Wrongful Dismissal?
Disclaimer
The content on this web site is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this web site are advised to seek specific legal advice by contacting members of Carson Law, Carson IP, or their own legal counsel regarding any specific legal issues. Carson Law does not warrant or guarantee the quality, accuracy or completeness of any information on this web site. The articles published on this web site are current as of their original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose.
References
1 Family Law Act, s.5(7)2 Family Law Act, s.5(6)
3 Family Law Act, s.7(3)
Assignment of an Agreement of Purchase and Sale
An Investment Conversation with Mark Baltazar from Peak Multifamily Investments
Ryan Carson and Mark Baltazar from Peak Multifamily Investments had a productive conversation about multifamily and commercial real estate investments that will be very informative not only for everyone, but especially first time investors!
Some topics included are:
Advice for first time investors
The ideal property type to invest in according to Mark
How has investing in multi residential changed since COVID-19?
With working from home now being more common, how will that affect the real estate market?
Ryan Carson and Mark Baltazar from Peak Multifamily Investments, had a productive conversation about multifamily and commercial real estate investments that ...
Have a question for Mark or want to know more about Peak Multifamily Investments?
Mark Baltazar Peak Multifamily Investments
Instagram: @mark_baltazar Instagram: @peakmultifamily
Facebook: Mark Baltazar Facebook: Apartment Building Investors Network
Sale of Canadian Property by a Non-Resident
Author: Warren Gilmore – Law Student
Edited By: Ryan Carson
If purchasing a property in Canada from a Non-Resident, the transaction will involve a unique set of tax concerns. It is important to have an understanding of your obligations, and to have them provided for in the Agreement of Purchase and Sale in order to avoid personal tax liability.
When a Non-Resident owner of property in Canada decides to sell, the CRA determines any yield in the value of the home that will be considered capital gains. As such, the CRA requires the Non-Resident Vendor to pay taxes on these gains. It is the responsibility of the Purchaser to perform a reasonable amount of due diligence to determine the residency classification of the Vendor. In conducting this due diligence, the Purchaser can request that the Vendor execute an “Affidavit of Residency.”
For the protection of the Purchaser, Agreements that involve these Non-Resident concerns usually include a clause that reads something to the effect of:
“The Purchaser is advised that the Vendors are Non-Residents of Canada and the Vendor's lawyer shall retain 25% of the purchase price in Trust until appropriate clearance certificates are issued by Revenue Canada. The vendor agrees to provide undertaking of such on closing.”
The Non-Resident Vendor is required to secure a clearance certificate from CRA before obtaining the entirety of the sale proceeds. This clearance certificate will outline how much of the sale proceeds are taxable, and are owed to CRA. While the clearance certificate cannot be applied for until all conditions have been fulfilled and the Agreement becomes binding, it is ideal to have this certificate in possession prior to the closing date of the transaction. This will allow all parties in advance to know exactly what taxes are owed, eliminating the need for a holdback. If this condition is not provided for and a clearance certificate is not obtained, the Purchaser will become the obligated party, and will be responsible for any taxes that CRA determines to be applicable to the transaction.
If a clearance certificate is not obtained before the closing date, the Purchaser and their lawyer should take the necessary steps to have the allotted portion of the sale proceeds remain in trust with the Vendor’s lawyer, pending a complete tax assessment from CRA.
The amount of the purchase price to be withheld is solely dependent on the nature of the subject property. If the subject property is determined to be non-capital, meaning that is was never used to produce income, and instead involved family residential use, then Section 116 of the Income Tax Act, provides that 25% of the purchase price is to be withheld. Alternatively, if the subject property is considered to be capital, and was used to produce income, the holdback allotment can increase to as much as 50% of the purchase price.
If this assessment reveals that no taxes are owed on the property, CRA will issue a clearance certificate, which permits the release of the sale proceeds that were being withheld. Conversely, if the CRA assessment revels that the transaction is indeed subject to taxes, then the amount owing will be deducted from the holdback amount. In total, this assessment period can take anywhere from 1-3 months to conclude.
Disclaimer
The content on this web site is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this web site are advised to seek specific legal advice by contacting members of Carson Law, Carson IP, or their own legal counsel regarding any specific legal issues. Carson Law does not warrant or guarantee the quality, accuracy or completeness of any information on this web site. The articles published on this web site are current as of their original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose.
Ask A Lawyer!
Recently, Ryan was able to sit down (virtually) with Matt McKeever, a Real Estate Investor and Entrepreneur to answer questions that viewers, like you, had about the real estate market and incorporating a real estate business.
Check out the information packed videos below!
Canadian Real Estate Lawyer Advice For First Time Buyers
Today we discuss my favourite question when it comes to real estate investing, 'Should You Buy In a Corporation?'. This is a question I get asked EVERY SINGL...
Should I Incorporate My Real Estate Business? | Ask A Real Estate Lawyer
Is Wholesaling Real Estate In Canada Legal?
If you enjoy these videos, let us know! We will continue to produce informative content to help you in any way we can.
Have a question for or want to know more about Matt Mckeever?
Instagram: http://www.instagram.com/mattmckeever85 Twitter: https://twitter.com/mattmckeever85 Business Inquires: mattmckeeverbusiness@gmail.com ►SUBSCRIBE: https://www.youtube.com/channel/UCdRtqnqBSq4GY7DGiYICu5g?sub_confirmation=1
Understanding Construction Liens
Author: Sarah Nadon – Law Student
Edited By: Ryan Carson
On July 1, 2018, the Ontario Construction Lien Act changed its name to the Construction Act. This name change allowed the Act to represent a broader scope of topics. While much of the Act remained untouched, several key components were changed. These amendments now drastically change the scope of the law governing the construction industry.
There are a number of factors that come into play when determining when a construction lien expires. There are three important time frames to consider:
Preservation of lien deadline;
Perfection of lien deadline;
Two-year limitation period to set action down for trial.
Preservation
The initial step to pursuing a construction lien claim is to preserve the construction lien by registering it against the title of the land. While most liens need to be registered, there are certain circumstances where the lien needs to be served.
In order to calculate the deadline for preserving a lien, it must be determined whether the individual was a contractor or another person (ex. supplier, subcontractor). If the individual is in fact a contractor (a person who supplied directly to the owner), the lien expires 60 days after the publication of the Certificate of Substantial Performance of its contract or the date of which the contract was completed or abandoned, whichever occurs first. Previously, in the old Act, this was a 45-day period.
Perfection of a Lien
Registering a Claim for Lien, preserves the lien and temporarily extends its life. A preserved lien has 90 days to be perfected or else it will expire. The lien must be perfected 90 days from the last day on which the lien could have been preserved. The time to perfect a lien was extended from 45 days to 90 days, giving the individual 150 to register and perfect a lien.
Pursuant to subsection 36(3) of the Act, if the lien attaches to the property, the lien is perfected by issuing a Statement of Claim and by registering a Certificate of Action on title of the property. If the lien does not attach to the premises, such as Crown land or a railroad crossing, it is perfected by starting an action to enforce the lien. In some circumstances a lien may be perfected by sheltering under the perfected lien of another claimant.
The action is started when the Statement of Claim is issued in a court office in a country in which the property is located. Unlike the Rules of Civil Procedure, which requires that a Statement of Claim be served within a six-month period, a lien must be served within 90 days of the claim being issued.
Due to the new act, lien claims with a value under $25,000 will be referred to the Small Claims Court. The objective of this is to make the court process less expensive and easier for the claimants to resolve their disputes.
Two Year Limitation Period
Once a lien is perfected within the time limits set out in the Construction Act, it is important to note the two-year limitation to set the action down for trial. If the lien is not set down for trial within the two-year limitation period, a motion may be brought to declare the lien as expired and to have the action dismissed.
Articles written by Sarah Nadon:
Force Majeure Determining Which Business Venture is Right for You! Kawhi Leonard Loses Copyright Lawsuit against Nike
Disclaimer
The content on this web site is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this web site are advised to seek specific legal advice by contacting members of Carson Law, Carson IP, or their own legal counsel regarding any specific legal issues. Carson Law does not warrant or guarantee the quality, accuracy or completeness of any information on this web site. The articles published on this web site are current as of their original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose.
The Prudent Real Estate Investor’s Legal Checklist
Author: Warren Gilmore – Law Student Edited By: Ryan Carson
Real estate investing has long been a lucrative business practice. Whether you are new to the business, or already have multiple properties, it is important to make sure that you have the necessary legal safe guards in place. In order to best protect yourself and your business, there are many important legal steps that the prudent real estate investor should investigate and consider implementing into their business operations.
Incorporation
Incorporating your business requires transitioning your sole proprietorship in the business into a company that is recognized formally as a corporation. When a company incorporates the business becomes its own legal entity, separate from the individuals that that make up its ownership. Incorporating also helps to protect the personal assets of the individual business owners in the instance that judgements or other enforceable debts are registered against the company.
In Ontario, incorporations are governed by the Business Corporations Act, 1990. This act requires that all shareholders within the corporation are to be registered as such. Shareholders are those individuals who make up ownership of the company. When the corporation is created, a specific number of shares must be established and issued proportionately to the individual shareholders. The act further requires that a corporation must have at least 1 shareholder, but no more than 50.
All of these advantages of incorporating apply to the practice of real estate investing. Considering the value of real estate, once your operation reaches a certain size it makes a tremendous amount of sense to protect yourself and your partners by incorporating.
JV Agreements
A Joint Venture Agreement works to join together two or more parties, either individuals or corporations, who desire to enter into a limited business arrangement or a single project. The most common example of this arrangement we see in the real estate world involves parties coming together to combine their resources in order to invest in property. For example, Party A and Party B come together in order to purchase a multi-unit rental property. All parties to such an arrangement agree to pool together their resources and to share in the overall performance of the project, including any profits and losses.
Joint Venture Agreements are intended to clearly outline the responsibilities and expectations of the parties as they pertain to the current project. The agreement should further outline the specifics of the project itself, the contributions, both operational and financial, and the specific obligations of each party.
If you find yourself investing with other individuals, or even other companies on individual projects, a Joint Venture Agreement should be considered. An experienced lawyer can help to ensure that all your concerns are clearly and effectively addressed in order to best protect your interest in a given project.
The Transactional Process
If your business operations involve multiple purchases and sales of properties, having an experienced real estate lawyer that you know and trust is another essential tool to have in your company toolbox.
When purchasing or selling a property, a real estate lawyer will help to represent your interests in the particular transaction. They will communicate directly with the lawyer representing the other party to the transaction. They will work to resolve any issues that might arise between the parties before, during, and after the transaction has closed. This might involve the fulfillment of particular conditions to the agreements, or any breaches to the agreement that may arise.
Additionally, a real estate lawyer will help you to navigate many potential speed bumps that often present themselves when purchasing real property. A real estate lawyer will work to discover any potential title issues that might exist on a prospective property and take the necessary steps to resolve them.
Further, depending on the nature of the investment property itself a real estate lawyer can help you put into place other legal safeguards for your investment. For example, if investing in a rental property, a real estate lawyer will not only be able to assist you with the closing of the transaction, but also to put in place the necessary rental agreements with tenants renting the property.
Whatever the particulars of any given real estate investment, it is essential to have an experienced real estate lawyer in your corner.
In summary, the nature of investing in real estate requires a significant degree of due diligence, as large sums of money are involved. The legal components mentioned here are all essential aspects of the overall process of ensuring that your business maintains an optimal level of legal protection.
Disclaimer
The content on this web site is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this web site are advised to seek specific legal advice by contacting members of Carson Law, Carson IP, or their own legal counsel regarding any specific legal issues. Carson Law does not warrant or guarantee the quality, accuracy or completeness of any information on this web site. The articles published on this web site are current as of their original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose.
.Non-Resident Speculation Tax
Author: Warren Gilmore – Law Student
Edited By: Ryan Carson
In 2017, the province of Ontario implemented a specific tax on foreign real estate buyers, the Non-Resident Speculation Tax. The tax works to impose greater financial burdens on foreign real estate purchasers, providing for a tax rate of 15% in addition to the purchase price of residential property. The tax applies specifically to residential properties located in the Golden Horseshoe area, effective as of April 21, 2017. Agreements of Purchase and Sale that were signed prior to this date, and that were not assigned to another party after this date, are not subject to the Non-Resident Speculation Tax.
The tax is intended to deter foreign buyers from purchasing residential property in an effort to moderate the skyrocketing housing market in the Golden Horseshoe area. Foreign investors have long found the housing market in these areas of Ontario to be a safe and attractive place to invest their foreign dollars. This practice has caused the value of homes in these areas to inflate, somewhat artificially. As a result, residential property in these areas are often out of reach for the everyday local residents of these communities. The Non-Resident Speculation Tax helps to relevel the playing field, and works to moderate residential real estate prices, making them more affordable for local residents.
The Non-Resident Speculation Tax is applied to foreign buyers, any individuals who are neither Canadian Citizens, nor Permanent Residents. The tax is also applicable to foreign corporations, those with corporate nerve centers outside of Canada.
Taxable trustees are also subject to the Non-Resident Speculation Tax. This typically includes trusts which have one or more trustees considered to be a foreign entity, or if the direct beneficiary of a trust is an individual considered to be a foreign entity.
However, purchasers who have been subject to this tax may be entitled to a rebate in the instance that they meet particular exempting conditions provided for in the legislation. These exemptions include:
If the buyer within 4 years of the real estate purchase closing date, becomes a Canadian Citizen or a Permanent Resident.
If the buyer is also a full-time student at an educational institution, at a campus located in Ontario for at least 2 years.
If the buyer has been legally employed in Canada for a least 1 year.
Individuals applying for one of these exceptions are also required to abide by the following conditions:
The buyer must hold title to the subject property either exclusively, or exclusively between themselves and a spouse.
The buyer is required to occupy the subject property as their primary resident for a minimum of 60 days beyond the closing date of the transaction.
The buyer must submit their application for an exception rebate no longer than 4 years after the closing date of the transaction.
The Non-Resident Speculation Tax may even have an effect on Canadian citizens in certain respects. If residential real estate is purchased through a partnership, where one of the partners is considered a foreign entity, the entire purchase will still be subject to the 15% tax. The tax is not imposed proportionality to the particular interest held by the foreign entity. In other words, if any member of a partnership is without an exemption to the tax, the tax will be fully applicable to the entire transaction.
Should you find yourself in a situation where the prospective purchase of residential property may be subject to the Non-Resident Speculation Tax, it is imperative that you meet with a lawyer to determine your potential eligibility for any of these exemptions. At Carson Law we can help you navigate these concerns, in part of an overall plan to best protect your interests.
Disclaimer
The content on this web site is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this web site are advised to seek specific legal advice by contacting members of Carson Law, Carson IP, or their own legal counsel regarding any specific legal issues. Carson Law does not warrant or guarantee the quality, accuracy or completeness of any information on this web site. The articles published on this web site are current as of their original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose.
.Determining Which Business Venture is Right for You!
Author: Sarah Nadon – Law Student
Edited By: Ryan Carson
Partnership agreements may arise informally through the shake of a hand; however, rarely is that the best course to follow when creating a partnership. Partnerships are very much like sole proprietorships however they involve two or more people.
Most partnerships, either big or small, operate subject to an agreement among the partners that lays out specific rights and obligations of every party, as well as provisions for running the company, both day to day and in the event that someone dies, or the partnership is dissolved. This article will examine the pros and cons of joint ventures and shareholders agreements as well as common mistakes that occur when entering into a business venture.
Shareholders agreement
A shareholder’s agreement is an agreement between the shareholders of an existing corporation. The agreement is used to assure that owners’ rights are protected. Shareholders agreements are very fact specific and are tailored to the unique circumstances of the parties.1
This type of agreement typically deals with two basic areas:
• Control and management of the corporation; and
• Termination of the relationship of the shareholder, whether by transfer of the shares to third parties, a buy-out of the shares by a different shareholder or by liquidation of the corporation.2
In a shareholder’s agreement each party is responsible for the actions of the other shareholders. Shareholders share risk, costs and profits with one another.
A shareholder’s agreement is an agreement between the shareholders of an existing corporation. The agreement is used to assure that owners’ rights are protected. Shareholders agreements are very fact specific and are tailored to the unique circumstances of the parties.1
This type of agreement typically deals with two basic areas:
• Control and management of the corporation; and
• Termination of the relationship of the shareholder, whether by transfer of the shares to third parties, a buy-out of the shares by a different shareholder or by liquidation of the corporation.2
In a shareholder’s agreement each party is responsible for the actions of the other shareholders. Shareholders share risk, costs and profits with one another.
Joint Venture
A joint venture involves two or more businesses or individuals combining their resources and expertise to achieve a shared goal. Joint ventures are usually undertaken by previously established businesses. Joint ventures are relatively new meaning unlike corporations, they are the least regulated. Much like partnerships, joint ventures do involve a fiduciary duty.3
Joint ventures are typically created by express agreement, which will define the rights, obligations and prospective liability of each participant in the joint venture.4 Unlike a shareholder’s agreement, each party is responsible for the debts they acquire but split the profits according to the agreement.
The main difference between a joint venture and a shareholder agreement is whether the agreement is between one company or several, as a shareholder’s agreement cannot be created with several different companies.
A joint venture involves two or more businesses or individuals combining their resources and expertise to achieve a shared goal. Joint ventures are usually undertaken by previously established businesses. Joint ventures are relatively new meaning unlike corporations, they are the least regulated. Much like partnerships, joint ventures do involve a fiduciary duty.3
Joint ventures are typically created by express agreement, which will define the rights, obligations and prospective liability of each participant in the joint venture.4 Unlike a shareholder’s agreement, each party is responsible for the debts they acquire but split the profits according to the agreement.
The main difference between a joint venture and a shareholder agreement is whether the agreement is between one company or several, as a shareholder’s agreement cannot be created with several different companies.
How to decide between a joint venture and a corporation
Corporations are another form of a business entity structure made available to the public. A corporation is when a company’s owners operate as a single business entity and is formed by filing articles of incorporation, while a joint venture is a partnership between two or more businesses that want to work together towards a common goal.5 A corporation has a separate legal entity from its shareholders meaning it has the same rights as an individual. In Canada, corporations have all the legal rights of a person therefore they are eligible for loans, can carry on business, sue or be sued. Corporations offer limited liability and is one of the most common business structures in Canada.
Since joint ventures have no statute to govern them, they are strictly governed by the contract made between the parties. Joint ventures allow flexibility for the parties and are not considered to be a taxpayer under Canadian tax legislation while corporations are taxed by both the Ontario and federal income taxes.6
When choosing a business entity, one should consider the legal liability, the tax implications, the cost of formation, the ongoing administration and the flexibility they desire. In addition, how the entity is governed may also be an important consideration.
Corporations are another form of a business entity structure made available to the public. A corporation is when a company’s owners operate as a single business entity and is formed by filing articles of incorporation, while a joint venture is a partnership between two or more businesses that want to work together towards a common goal.5 A corporation has a separate legal entity from its shareholders meaning it has the same rights as an individual. In Canada, corporations have all the legal rights of a person therefore they are eligible for loans, can carry on business, sue or be sued. Corporations offer limited liability and is one of the most common business structures in Canada.
Since joint ventures have no statute to govern them, they are strictly governed by the contract made between the parties. Joint ventures allow flexibility for the parties and are not considered to be a taxpayer under Canadian tax legislation while corporations are taxed by both the Ontario and federal income taxes.6
When choosing a business entity, one should consider the legal liability, the tax implications, the cost of formation, the ongoing administration and the flexibility they desire. In addition, how the entity is governed may also be an important consideration.
What kind of questions should be answered before talking to a lawyer?
Before speaking to a lawyer, one will want to have an idea of which type of agreement they would like drafted. Next, they should know who the parties to the agreement will be, when the agreement will end, if ever. The parties to the agreement should also know what the objective of the agreement is in order to help the lawyer draft a proper contract.
What to include in an agreement?
Shareholders agreement:
The right to remove directors
Terms to protect minority share holders
Restrictions on how and when someone can dispose of their shares
Limitations on what actions a director can take
A business plan to assure that all shareholders are on the same page
How to resolve a shareholder dispute
The right to first refusal clause
Joint Venture:
Type of joint venture
Benefits and risks
Financial contribution each party will make
Objective of the joint venture
Ownership of the intellectual property created by the joint venture
How liabilities, profits and losses are shared
Common mistakes
If in a limited partnership, limited partners are not allowed to take an active role in management of the partnership, as it exposes the limited partners to the same level of liability as the general partner
Not choosing the right business entity
Starting a venture without a business entity
Not filing the proper documentation for the business entity
Excluding important clauses from the business contract
Inadequate capitalization
Ignoring intellectual property and getting sued for infringement
Objectives of a joint venture are not 100% clear and communicated with everyone
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References
1 The Editorial Staff of LexisNexis Canada in co-operation with The Institute of Chartered Secretaries and Administrators in Canada, Canadian Corporate Secretary’s Guide (LexisNexis Canada, 2003) (loose-leaf updated 2020), (QL)
2 Ibid.
3 Meinhard v. Salmon, 62 A.L.R. 1 at 4-5 (N.Y.C.A., 1928)
4 Chitel v. Bank of Montreal, [2002] O.J. No. 2170 (Ont. S.C.J.
5 Canada Business Corporations Act, RSC 1985, c C-44, Part II.
6 Neil Hazan, “Joint Ventures in Canada: Overview” Joint Ventures Law Global Guide, August 1 2017.
