By: Adam Aptowitzer
Readers of this newsletter will easily recall that charities must maintain control and direction over all of their funds, particularly on projects outside of Canada’s borders. Typically, where the Canadian charity is supplying 100% of the funds, yet working with a foreign intermediary, the relationship is structured as a principal/agent relationship. However, it is unreasonable for the Canadian charity to demand control and direction over the entire project if they are only providing a portion of the funding. This is the case where the Canadian charity is one of a multitude of international organizations jointly funding a project in a foreign country. Indeed, typically, Canada generally provides a much smaller portion of the funding in relation to charities in the US, the UK and elsewhere. In these situations, the CRA is prepared to acknowledge that the Canadian charity’s control and direction should be proportionate to its overall funding for the project.
One way to structure these types of relationships is through a joint venture. The CRA has specific requirements for joint ventures as outlined in its guideline called “Canadian registered charities carrying out activities outside Canada”, the actual form of the joint venture is not pre-determined by the CRA.
Joint ventures are somewhat of a nebulous concept. They involve the negotiation of a relationship between the Canadian entity along with its various foreign partners to determine how they are going to operate together in order to accomplish their objective. Entities operating internationally with partners often form joint ventures of one form or another in order to engage in their business practice. Typically, the form of organization is a product of the country in which they are operating. For example, entities operating in the United States may choose to use a limited liability corporation. Entities operating in Africa may choose a looser form organization which is a product of a contractual negotiation.
This particular article is intended to serve as an introduction to the concept of choosing different forms of joint ventures and future articles will discuss in greater detail the choices for operating in different countries. Nevertheless, in all aspects, it should be understood that joint ventures are a complicated form of arrangement and lawyers that are familiar with the laws of the area in which they are going to be operating must be consulted.