For businesses pursuing partnerships with Indigenous organizations, properly structuring the relationship is a key early step, especially in the context of government procurement. For non-Indigenous businesses in particular, these arrangements can present significant opportunities, but they also come with legal and compliance risks if not properly structured.

Whether engaging in a contractual joint venture (CJV) or investing as a minority shareholder in a corporation that is 51% Indigenous-owned and controlled, each approach presents certain benefits and challenges. The decision will weigh factors such as risk allocation, governance, financing, long-term sustainability, and compliance with government programs like Canada’s Procurement Strategy for Indigenous Business (PSIB).

Understanding the options

A CJV is a contractual arrangement between two or more parties to collaborate on a specific project or contract. It does not create a separate legal entity, allowing participants to retain their independence while working together. In many cases, a CJV may serve as a trial phase. If the relationship proves successful, incorporation may provide a path toward long-term strategic partnership and more streamlined PSIB eligibility.

In contrast, an Indigenous-owned corporation is a standalone legal entity that can own assets, secure financing, and operate independently (subject to a shareholders’ agreement) of its shareholders. While both structures facilitate collaboration with Indigenous partners, their strategic goals differ. CJVs are typically used for short-term, project-based engagements, whereas corporations offer long-term scalability and investment.

Meeting Indigenous procurement eligibility requirements

The federal government’s 5% Indigenous procurement target creates opportunities for Indigenous-owned businesses and their partners. To qualify under PSIB, the organization, whether a corporation or a CJV, must be at least 51% Indigenous-owned and controlled, and at least 33% of the contract value must be performed by an Indigenous business. How one determines ownership of CJV is an issue and indeed how one measures 33% of the contract value being performed by the Indigenous entity is also rather vague and have to be considered risks in a CJV.

Risk and liability: Who holds the burden?

Risk allocation further differs between the two models. In a CJV, liability is defined contractually, and if not clearly drafted, may expose both parties to unanticipated risk. Furthermore, in contractual joint venture arrangements, the Crown is likely to require the non-Indigenous partner to be jointly and severally liable, even where the contract is awarded solely to the Indigenous entity. This risk allocation must be carefully considered when selecting the business structure.

A corporation on the other hand provides a more predictable liability framework—limited to the corporate entity itself—unless shareholders have offered personal guarantees.

Reputation and compliance: Aligning with Indigenous economic development

For businesses aiming to demonstrate a long-term commitment to Indigenous economic reconciliation, a corporation may provide greater credibility and continuity. Corporations allow for reinvestment, equity growth, and a more straightforward PSIB compliance framework, as ownership and control (subject to shareholder’s agreement) are generally aligned with shareholdings.

CJVs may still satisfy PSIB requirements, but because they are not legal entities, additional effort is needed to demonstrate that the Indigenous partner meaningfully controls decision-making (directly and indirectly) and derives the benefit, which is arguably a minimum of 33% financial benefit from the prime contract value. This is especially important as the Crown increases scrutiny of the actual economic substance of joint venture arrangements.

Financing: A critical distinction

As a legal person, a corporation can apply for loans and grants, and benefit from funding streams directed at Indigenous-owned entities. A CJV, by contrast, cannot own assets or enter into financing agreements directly. This can lead to complexity, especially where one partner is expected to take on debt or financial obligations on behalf of the venture.

Governance and decision-making

Corporate structures are subject to statutory governance rules, which provide for director duties, voting rights, and shareholder protections. CJVs, lacking this framework, must rely on carefully drafted agreements to define roles, financial commitments, and authority. This offers flexibility but also requires careful consideration be given to all aspects of governance.

Increasingly, control is becoming a central issue for PSIB compliance. The Crown may reject a CJV if it believes the Indigenous partner lacks “real” control, even if that control is shared or subject to certain joint/mutual decisions. Businesses should therefore be prepared to demonstrate not just ownership, but practical control by the Indigenous party over key aspects of the project.

Tax considerations and administrative burden

CJVs are less burdensome from a tax perspective, as they do not require separate filings. Corporations, however, must file tax returns, maintain statutory records, and adhere to corporate law requirements. This added burden comes with the benefit of clearer governance, financing and risk allocation.

Making the choice

The decision between a CJV and an Indigenous-owned corporation depends on the project’s scope, risk profile, and long-term objectives. CJVs provide flexibility and ease of entry, while corporations offer structure and growth potential. However, in light of how the federal government is currently assessing Indigenous ownership and control, CJVs may carry more compliance risk and should be structured with legal precision.

Additionally, both parties should assess whether the non-Indigenous partner may be exposed to a disproportionate level of liability relative to their role in the CJV. In particular, joint and several obligations may be inappropriate where the non-Indigenous partner lacks control—especially if decision-making authority lies primarily with the Indigenous partner and each party’s responsibilities are clearly delineated.

With PSIB compliance audits becoming more frequent and less predictable businesses need to be proactive in how they structure their joint ventures. Waiting until after a contract is awarded or challenged can result in disqualification, reputational damage and/or audit risk.

Whether you are considering a joint venture, a corporate structure, or a formal partnership, the framework you select now will influence your future procurement opportunities and risk exposure. Gowling WLG regularly advises non-Indigenous businesses forming partnerships with Indigenous entities, including the drafting of joint venture, shareholder, and partnership agreements aligned with PSIB requirements. If you are preparing to bid, build, or collaborate meaningfully, we would be pleased to assist.