Trusts Although it has always been possible to use a trust as a form of business organization, only comparatively recently has the income trust become a common form of public offering in Canada. The primary reason for employing a trust rather than a corporate structure is to realize greater tax efficiencies for investors than would be possible by distributing corporate earnings to shareholders by way of dividends. In most cases, the trust is not itself the operating business entity. However, tax changes have reduced the tax advantages of a trust structure and some income trusts have been converted to corporations (see the Tax Considerations chapter of this guide). In Ontario, a trust is primarily governed by the provisions of the declaration establishing the trust and non- statutory principles of equity, although trusts are also subject in certain respects to statutes such as the Trustee Act . In Québec, trusts are governed by the Civil Code of Québec and the Act respecting the legal publicity of enterprises . A commercial trust such as a business trust, investment trust or real estate investment trust must now register with the REQ unless the trustee of the trust is already registered. The primary reason for employing a trust rather than a corporate structure is to realize greater tax efficiencies for investors than would be possible by distributing corporate earnings to shareholders by way of dividends.
A joint venture may be difficult to distinguish from a partnership, and the parties’ characterization of their relationship may not be conclusive. The most important legal distinction is that sharing of profits is essential to a partnership, whereas joint venturers generally contribute to expenses and divide revenues of the project, but do not calculate profit at the joint venture level. Equal participation in management of the business is characteristic of a general partnership, but less usual in a joint venture, where one party often operates the project, or management is contracted out. Joint venturers that do not want their joint venture to be treated as a partnership should enter into a written agreement setting out their respective rights and obligations in detail and exercise care in dealing with third parties. In Québec, joint venturers should also file the proper declaration under the Act respecting the legal publicity of enterprises to avoid being characterized as a general partnership, in which case each partner would be fully liable for partnership obligations and subject to tax as a partner, rather than as a joint venturer.
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Doing Business in Canada
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