Farming Joint Ventures Andrea V. Argue February 13, 2018

Outline Distinguishing Joint Ventures 2. Use of Joint Ventures in the Farm Growth Phase and Farm Transition Phase 3. Setting up Joint Ventures from a Farm Management Perspective

Distinguishing Joint Ventures

Sole Proprietorships “Owned and run by a single equity investor who manages the company and is entitled to the residual of the business” No distinction between the owner and the business entity All profits go to the business owner Business owner also has unlimited responsibility for debts, loans, losses, etc. May or may not use a business name

Partnerships “A business relationship where two or more persons carry on a business with a view to making a profit” Has the following characteristics: Partners share the profits and losses of the business equally in proportion to their partnership interests Property may be jointly owned Each partner has the ability to contractually bind and act as agent for the other partner(s) Formal registration as a partnership See The Partnership Act

Corporations “A company or group of persons authorized to act as a single distinct entity and recognized as such in law” Has the following characteristics: A distinct legal entity – may own its own property, enter into contracts, and sue or be sued Limited liability – owned by shareholders whose liability is generally limited to their investments Distinct management structure - shareholders elect a board of directors to control the corporations in a fiduciary capacity; officers manage the day-to-day affairs Perpetual existence – continues despite the coming and going of new shareholders, officers, and directors Created through registration See The Business Corporations Act

Joint Ventures “A binding business arrangement where two or more parties combine their skill, knowledge, funds, property, technology, etc. to achieve a common objective” Generally characterized by shared ownership, shared risks and returns, and shared governance Equipment and resources are pooled to reduce production costs, promote efficiency and profitability, and minimize losses Not a separate entity – doesn’t own its own property Dissolved more easily than either a partnership or a corporation and often designed only for a specific term Profits and losses are allocated to “venturers” as opposed to any general assumption of equal participation 1,200 x 160 = 192,000

Joint Ventures Different levels of formality exist Joint venture agreements create legally binding obligations 1,200 x 160 = 192,000

2. Use of Joint Ventures in the Farm Growth Phase and Farm Transition Phase

Operations Sharing of capital assets may allow fixed costs to be spread over a larger base, lowering production costs and maximizing overall profitability May be used in parent and child business arrangements, or among arm’s length parties Allows for control over a specific business undertaking while remaining separate business entities Allows farm income to be maintained and tax deferrals preserved

Succession A joint venture may be the bridge to farm succession A way to transition financial and management responsibilities Consider inter-generational rollovers

3. Setting up Joint Ventures from a Farm Management Perspective

Joint Venture Agreement Terms Designate parties Outline the objective(s), scope, and purpose Contributions Consider attributes of the joint venturers Management responsibility Signing authority Consider ancillary documents

Joint Venture Agreement Terms Determine place of business, records, and bank accounts Other essential considerations: What it is not Insurance Restrictions on assignment of interests Division of profits and losses Tax considerations Mutual obligations Exit provisions

Conclusion A joint venture may be a valuable business arrangement for you Consider formalizing your joint venture!

Ashley D. Falk, Student-at-law Questions? Thank you for your attention. Presented by: Andrea V. Argue Powerpoint by: Ashley D. Falk, Student-at-law Kanuka Thuringer LLP 302-350 Cheadle Street West Swift Current SK, S9H 4G3 306-773-4800 This presentation and its content is provided to you for general informational purposes only. It is not intended as and should not be taken as legal or any other kind of advice. Please seek specific professional advice with respect to your unique circumstances.