Other sectors use joint ventures much more often. In the construction industry, for example, smaller subcontractors team up to form a larger general contractor that they all perform work for and then bill for their services. In Alberta s oil and gas industry too, companies often partner on projects but maintain their own separate businesses.
Clayton Jackson, University of Saskatchewan professor of farm management, says the typical joint venture lets participants tackle things they otherwise couldn’t, either due to scale, ability or even equipment.
In essence, a joint venture is a way for two businesses to work together without being full partners, and without assuming all of the rights and responsibilities that a partnership can come loaded with, such as joint ownership of assets and liability for each others debts.
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But it s the similarity to a partnership can be problematic if a joint venture isn’t spelled out clearly right off the top.
Jackson cites an established farm that wants to grow a new crop like peas, but lacks the specialized equipment like a draper header or a roller. They might form a joint venture for a season or two with a neighbour who is already a pea grower, he says. The first farmer would contribute the land to the joint venture, the second farmer the equipment and knowledge, and they d share the expenses and revenue.
Jackson says such an example demonstrates the two most typical features of a joint venture. They re created for a specific task (and often for a specific time too). And because of the limited nature of the agreement, they are explicitly not a partnership.
What these farmers do not want to do is go into a partnership and farm together, Jackson says.
It s good practice to have a written joint-venture agreement, Jackson says. It says what each party can and can t do and the one big thing, that it s not going to be a partnership.
As farm businesses have become larger and larger units and the need for more sophisticated management systems has emerged, more farmers may want to consider joint ventures for reasons like tax strategy.
For example, a joint venture can be an excellent way for a farmer to remain engaged in the business of farming for purposes like qualifying for capital gains exemptions, or the tax-free roll of assets to the next generation, Jackson says.
For tax purposes the farmer with the land in the joint venture is still considered to be an active farmer, even though they may no longer need to worry about the day-to-day work.
