Co-ownership Agreements
and Horse Syndications
by Catherine Willson, B.A., Ll.B.
Willson Lewis LLP • www.willsonlewis.com
Photos by Dave Landry
If you want to race a Quarter Horse, why not
do it with friends?
The purchase, training, and racing of a good quality
Quarter horse can be expensive. It is advantageous
to share the cost among a few friends and you can
all share the fun.
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Multiple ownership can take many forms from a
Catherine Willson, B.A., Ll.B. simple contract between two friends for the purchase
of a horse, to limited partnerships, corporations, trusts, joint ventures, and a
variety of other vehicles. Each has its own special rules and the choice of vehicles
should be carefully considered before any money is expended on the venture.
Co-ownership Agreements
At its simplest level, a multiple ownership agreement could be a co-ownership
agreement between two or more friends to purchase a horse, train it, race it,
and eventually with luck, sell the horse at a profit. Each of the friends may
contribute a portion of the purchase price. One may contribute the training and
horse expertise in lieu of funds towards the purchase. Whatever the arrangement,
there are some basic points that should be observed to make the venture a
successful one:
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Put the agreement in writing. This should be done immediately
on the purchase of the horse. There is no sense making up
the rules after the arguments have started.
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The agreement should specifically indicate what each
owner is expected to contribute. It should indicate
who will pay for the upkeep of the horse, training,
racing, and all the other details inherent in training
and racing quarter horses.
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The agreement should contain a "dispute resolution"
clause, ie. if the owners cannot agree on an issue, there
should be some mechanism to break the stalemate. As an
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example, if one owner is contributing the horse expertise, that
owner could be given the final say on issues dealing with the
health and training of the horse. As another example, a trusted
advisor or mediator could be chosen by the owners to mediate the dispute or decide the issue.
Make sure the agreement contains an escape clause. If one
owner wants out, there should be a buy out clause allowing the
other owners to purchase that partner's share of the horse at an
agreed price. The agreement should also make clear the events
that will trigger a sale of the horse. Many disagreements arise
because one owner wants the horse sold and the others do not.
As the value of a horse can fluctuate wildly due to injury or
success, the timing of a sale is very important.
Discuss the transaction with a financial planner. The co-owners
of a horse have an undivided percentage interest in the animal.
If the owners are participating in the venture to make a profit,
there are tax planning issues that should be considered to allow
for a maximum return on the investment.
When drafting the agreement, look ahead, plan for foreseeable
events or problems, and where possible, have the agreement
reviewed by a lawyer with experience in this area. The cliche, "An
ounce of prevention is worth a pound of cure,"
applies as much in law as it does in medicine.
Get INVESTED. Get INVOLVED.
No matter how simple or small the purchase,
I cannot stress enough the importance of
putting down some basic guidelines for the
relationship between the co-owners on
paper. Without this, a disagreement between
co-owners regarding the maintenance or sale
of the horse may quickly deteriorate and the
resulting dispute could harm the position of
all parties involved as well as end friendships, increase cost and precipitate court action.
Corporations
The corporation is another vehicle used to purchase higher quality expensive horses or to undertake
more serious horse ventures. It is a creature created by law and has special properties that make its
use beneficial.
Legally, a corporation is treated like a person. It can own property, buy and sell, and must submit regular
tax returns. The debts of the corporation are its own. Creditors must claim against the corporation for
monies owing to them by the corporation. Creditors cannot go behind the corporation to claim against
the people who control it (with some limited exceptions). This characteristic of limited liability makes
the corporation a popular choice for money making ventures, especially where the risks are high and
the investors want to protect their other assets from possible claims by creditors.
Family Fun Day
at Ajax Downs
A corporation is treated differently than an individual from an income tax
perspective. Income earned by a corporation is taxed at the corporate level which is lower than the tax on most individuals.
Shareholders have the option of removing money from the
corporation in the form of dividends which are taxable at a
special rate, or leaving profits in the corporation for use in
other money making enterprises.
Another benefit to the corporation is its longevity. Companies
never die if properly maintained. If the horse venture is to be a longterm investment such as the set up of a breeding or racing stable,
it makes sense to use a vehicle that will continue to exist as the various partners in the venture pass away.
A disadvantage caused by the separate nature of a corporation is that, for income tax purposes, the
income earned by a corporation cannot be sheltered by losses incurred by the shareholders personally.
Similarly, the losses incurred by the corporation cannot be flowed through to the shareholders and offset
against other income earned by the shareholders. Income tax considerations such as these have led to
the use of other vehicles for syndications such as the limited partnership.
Partnerships
Partnerships, including limited partnerships, usually consist of a number of
investors that come together to perform a specific business venture. When
two or more people carry on a business together with a view to making a profit,
they have formed a partnership. Each partner has some degree of personal
involvement and control. Each partner is entitled to a share of the profits and
is liable for a share of any loss.
There are two main advantages to using a partnership, the first being its ease
of formation and dissolution. It is recommended that the names and addresses
of the partners and the name under which trade is carried on be registered
with the appropriate government agency. Filing fees are low. Dissolution of
the partnership takes place when one partner gives notice of dissolution or,
where the partnership has been created for a fixed term, at the end of the
fixed term.
The second advantage is its flexible management structure. The relationship
between the partners is contractual. The partners can draw up an agreement
between themselves dealing with the management of the partnership,
distribution of profits, liabilities, and anything else they feel is important. As
such, the partnership can be organized to accommodate a variety of business
arrangements. Syndications are a form of partnership.
Income and loss flow through the partnership to the individual partners and
are shared between the partners equally or in accordance with their partnership
agreement. The income or loss must be included in the partners' personal
annual tax filings.
Photos by Kelly Counsell
Racehorse Ownership Seminars
Join us for Brunch on Sundays at Ajax Downs
September 12th and October 17th
Learn about the benefits of getting invested as a breeder and/or racehorse
owner in the Quarter Horse racing industry.
Network with industry professionals and learn about the different types of
ownership from special guest speaker Catherine Willson of Willson Lewis LLP.
Willson Lewis LLP is an industry member of the Ontario Equestrian Federation
and a member of the international Equine & Animal Lawyers Association.
Catherine is a legal representative for the Horse Racing Alliance of Canada.
She has given conferences across Canada on equine law for Equine Canada,
the Ontario Equestrian Federation, and the Jockey Club of Canada. She advises
on contracts, syndicates, litigation, disputes, and tax issues related to horses.
Attention Trainers and Breeders!
Take this opportunity to direct potential new customers to one
of these seminars. Reservations are required.
To attend a Racehorse Ownership Seminar you must reserve your seat through
the Ontario Quarter Horse Racing Industry Development Program by contacting
Sandy Anthony at 416-213-0520
or email [email protected].
Partnerships - continued from page 2...
Every partner is jointly and severally liable with the other partners for all
debts and obligations of the partnership incurred while a partner. Further,
partners are jointly and severally liable in respect of any wrongful acts or
omissions by any partner acting for the partnership and for the misapplication
of any money or property received for, or in the custody of, the partnership.
To be "severally liable" means that a partner can be sued independently for
the whole amount of the loss. That partner would then have to go after the
other partners to recover whatever contribution they were supposed to
make under the partnership agreement.
To protect yourself from this situation, maintain an active role in the
partnership. If you sit back and trust others to run the business, you may
end up paying when the creditors come knocking.
A limited partnership consists of one or more partners who act as general
partners and many more partners who act as limited partners. A limited
partner is only liable for the debts of a limited partnership to the extent of the
monies provided by that limited partner to the partnership. A limited partner
must not take a controlling interest in the partnership.
Horse Syndications
There is no magic to the term "horse syndication". It refers to a transaction
that can take the legal form of a corporation, partnership, or other vehicle.
Key to the concept is that it involves investors coming together to perform
a particular venture, whether it be the purchase of a race horse, stallion,
or horse operation, with a view to making a profit on the investment. It is
a business.
In most syndications, the role of the investors is relatively passive. There
may be one managing partner or experienced horse person that takes the
role of management and control of the horse operation.
The reasons vary why people enter into these syndications. Often it
provides a mechanism whereby people who could not afford to participate
in the horse business may do so. Often, there is some tax advantage to
participation in a syndicate.
Multiple co-ownerships, in any form, make available to many of us the joy of
owning and watching a good horse perform and succeed. There are also the
perks of ownership such as passes to the clubhouse or box seats, entry
into the training areas or stables, and of course, hobnobbing with the rich
and horsey. It also helps the sport to succeed - the more quality horses
introduced into the sport in Canada, the better the action. With care and if
Revenue Canada cooperates, we should see more of these cooperative
efforts in Canada in the future.
Catherine Willson is a partner at Willson Lewis LLP in Toronto (www.willsonlewis.com).
This information deals with complex matters and may not apply to particular facts
and circumstances. The information reflects laws and practices that are subject to
change. For these reasons, this information should not be relied on as a substitute for
specialized professional advice in connection with any particular matter.
QUARTER HORSE RACING AT FORT ERIE
Three Full Day Race Cards of Quarter Horse Racing:
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More than $650,000 available in purses
for Quarter Horse races
Two Days of Mixed Race Cards
Throroughbred and Quarter Horse Racing:
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Up to $200,000 in added money for stakes
races and feature races
Saturday, October 23rd and 24th
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All Ontario Quarter Horses starting at Fort Erie
(Ontario Quarter Horses with one-or-more
starts in Ontario in 2009 and 2010) are
eligible for a Transportation Subsidy
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Open races at Fort Erie eligible for QHRIDP
Ontario Bred and Ontario Sired Purse Bonuses
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Eligible horses racing at Fort Erie earn
QHRIDP Breeders Awards, Stallion Awards
and Breeder/Stallion Stakes Bonuses
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Discount hotel rates for Horsemen at Fort Erie
Holiday Inn
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Stabling available at Fort Erie
Saturday, October 2nd, 9th and 16th
Heads Up!...
A Horsemen's Information Session is scheduled for
end-of-August (in Ajax) to present details on race conditions, bonuses
and incentives, and race entry details.
Television Pilot to Reach
Potential 3.5 Million Viewers
The Full Quarter...
The Ontario Quarter Horse Racing Industry Development Program (QHRIDP) is funding the production of a
four-episode television pilot, The Full Quarter, to capture the imagination of a potential 3.5 million CTV viewers
in the GTA and Golden Horseshoe regions of Ontario.
Four episodes of The Full Quarter will air on CTV on Saturday mornings at 11:30 a.m. beginning August 14th. The
program will showcase Quarter Horse racing in Ontario, with additional feature highlights focusing on Quarter
Horse athletes in rodeo, barrel racing and other sports.
Goals and objectives of the Ontario Quarter Horse Racing Industry Development Program include attracting
new investment from sponsors and horse owners and introducing potential new owners to the sport.
This program is moving into new areas to raise awareness of the Quarter Horse racing industry in
Ontario," said Wendy Hoogeveen, Director at the Ontario Racing Commission which oversees the Quarter
Horse Program. "The theme fits with the Program's objective of attracting investment and new audience,
as well as promoting life after racing for ex-racehorses. This is a pilot project and the outcome will be carefully
assessed to determine that it has met the goals and objectives of The Program.
Developed and administered by the Ontario Racing Commission in cooperation with industry stakeholders, the
Ontario Quarter Horse Racing Industry Development Program is designed to be an economic driver for rural
Ontario. For more information on the Ontario Quarter Horse Racing Industry Development Program and Ontario's
Horse Improvement Programs visit: www.ontarioracingcommission.ca
WannaBet Team
Sells Superpacks Like Hotcakes!
Tuesday, August 3rd, marked the
first of a series of six visits to Ajax
Downs from the WannaBet Team.
Their goal is to engage customers
coming through the front door
and to get them interested in
wagering on live racing. To make
it easier for customers, the Team
assembles and sells a series of
pre-selected bets for six races
called the Superpack. Customers
receive their pre-selected wagering
vouchers in an envelope that
includes a brochure with tips on
how to wager on Quarter Horse
racing. During the first visit to
Ajax Downs, the WannaBet Team was faced with a flurry of sales
and curious slot customers from the time they set up at the track.
Guest Speaker - Peter Gross
Handicapping
Brunches
The Quarter Horse Program hosted two
Handicapping Brunches at Ajax Downs, June
27th and July 13th, featuring guest speaker and
broadcast personality Peter Gross. Over 20
guests were in attendance at both events. The
Handicapping Brunches provide a very cost
effective way to educate new customers on
handicapping and wagering, effectively turning
them into repeat customers for live Quarter
Horse racing, and introducing them to the
potential of racehorse ownership.
Quarter Horse Program
at Guelph's Premier
Outdoor Equine Expo
The Quarter Horse Program was an exhibitor
at the first Outdoor Equine Expo in Guelph June
4th-7th. There was an impressive turnout of industry exhibitors, and the final day of the
event was geared specifically for the racing
industry. Speakers representing the Quarter
Horse racing industry included QROOI President
Bob Broadstock and VP of Corporate Affairs at
Ajax Downs, Nick Coukos.
Program representatives spoke to attendees
about the racing program, the breeding
program and the industry support programs
and ran a daily draw, collecting contact
information for persons interested in racehorse ownership.
The Team runs contests and draws for prizes between each race
to generate excitement and get new players committed to horse
racing. One of the prizes is a race presentation in the Winner's Circle.
WannaBet Dates at Ajax Downs:
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Tuesday, August 3rd
Sunday, August 15th
Tuesday, August 31st
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Sunday, September 12th
Tuesday, September 21st
Sunday, October 17th
Information Links:
www.ontarioracingcommission.ca
www.qrooi.com
www.ajaxdowns.com