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Saskatchewan CPLED Program Corporate Commercial Section 1

Forms of Business Organization

Contents

Introduction............................................................... Corporate-1-1

For-profit Business Structures .................................. Corporate-1-1 Sole Proprietorship ............................................. Corporate-1-1 Partnerships......................................................... Corporate-1-4 Joint Ventures ................................................... Corporate-1-13 Corporations ..................................................... Corporate-1-16 Co-operatives.................................................... Corporate-1-16

Not-for-profit Organizations ................................... Corporate-1-18 Associations/Societies ...................................... Corporate-1-18 Non-profit Corporations ................................... Corporate-1-18

Choosing a Form of Business Organization ........... Corporate-1-19 Limited Liability and Nature of Business......... Corporate-1-19 Perpetual Existence........................................... Corporate-1-19 Number of People Involved.............................. Corporate-1-20 Shareholder Relations....................................... Corporate-1-20 Borrowing Requirements.................................. Corporate-1-20 Government Grants........................................... Corporate-1-20 Estate Planning ................................................. Corporate-1-21 Employee Participation..................................... Corporate-1-21 Costs ................................................................. Corporate-1-21 Flexibility.......................................................... Corporate-1-21 Income Tax ....................................................... Corporate-1-21

Precedents:

Partnership Agreement Checklist...........................Corporate-P-1-1

Partnership Agreement...........................................Corporate-P-1-5

Declaration of Limited Partnership......................Corporate-P-1-23

Limited Partnership Agreement ...........................Corporate-P-1-27

No part of this material may be reproduced, in whole or in part Corporate–1–i (in any manner), without the specific written permission of The Law Society of Saskatchewan 2009 © The Law Society of Saskatchewan.

Corporate Commercial Section 1 Forms of Business Organization 2009 © The Law Society of Saskatchewan

Corporate–1–ii Saskatchewan CPLED Program

Corporate Commercial Section 1 2009 © The Law Society of Saskatchewan Forms of Business Organization

Introduction

There are a number of ways to structure a business. This chapter discusses the various forms of business organizations used to conduct business in Saskatchewan, including for-profit business structures and not-for-profit organizations, specifically:

• sole proprietorship; • partnership:

◊ ordinary; ◊ limited; and ◊ limited liability;

• joint ventures; • corporations; • co-operatives; • associations; and • non-profit corporations.

For-profit Business Structures

Sole Proprietorships The simplest form of business structure is the sole proprietorship. A sole proprietorship exists whenever an individual engages in business on his or her own account without using any other form of business organization as a medium and without involving other persons except as employees. All benefits that arise from the business accrue exclusively to the sole proprietor. At the same time, all obligations and liabilities are the personal responsibility of the sole proprietor. Consequently, the sole proprietor is responsible for the performance of all contracts of the proprietorship and any liabilities that may result by virtue of the tortious acts of the sole proprietor or his employees. Subject to any statutory exemptions (for example, those provided by The Exemptions Act), the assets of the sole proprietor are liable to be seized to satisfy his liabilities. These liabilities may, however, be limited by the sole proprietor obtaining insurance or contractual limitations of liability.

Saskatchewan CPLED Program Corporate–1–1


Despite the exposure to personal liability, many businesses are operated as sole proprietorships. It is less costly to operate a sole proprietorship, and for many business owners, the cost to incorporate and maintain a corporation outweighs the benefit of limited liability. A sole proprietorship may also be appropriate where an individual has just established his or her business. The owner may wait until the business has grown to the size where it needs automobiles, employees, leased space, financing, or other major changes before incorporating.

Taxation Income arising from the sole proprietorship is added to the personal income of the sole proprietor and the sum is taxed at the proprietor’s individual marginal rate. Individuals are taxed under the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1 at progressive rates. The top marginal rate of income tax for an individual earning business income in Saskatchewan is approximately 44%.

GST The Goods and Services Tax (“GST”) is a consumption tax aimed at the final “non-business” purchaser of goods and services. Businesses that are registered for the GST can get back any GST they pay on account of business purchases through an input tax credit system:

(a) if the GST collected or collectible by the business on its sales and dispositions exceeds the GST paid or payable on its purchases, the difference is remitted to the Federal Government; and

(b) on the other hand, if the GST paid or payable by a business on its purchases exceeds the GST collected or collectible on its sales or dispositions, the business can apply for a refund of such excess from the Federal Government.

A sole proprietor carrying on a “commercial activity” in Canada is required to be registered for the GST (Excise Tax Act, R.S.C. 1985, c.E-15, section 240). The registration number received from the taxation authorities is known as a “business number”. That business number is used by Canada Revenue Agency (“CRA”) to track GST, payroll source deductions, import-export transactions and corporate income tax filings for a taxpayer. One important exception to this GST registration requirement is for

Corporate-1-2 Saskatchewan CPLED Program


those persons who are considered “small suppliers” (Excise Tax Act, section 240(1)(a)). Essentially, a person is considered a “small supplier” if their total taxable sales in a year do not exceed $30,000.

Business Name If a sole proprietor carries on business under a name or style in the Province of Saskatchewan (which name or style can include his own family name or surname or a name or style comprised of his own family name or surname with the addition of some other word or phrase indicating a plurality of persons), he must register that business name under The Business Names Registration Act, R.S.S. 1978, c.B-11, section 4(1). No business name shall be registered if, in the opinion of the Registrar, the name:

(a) is the same as or similar to the name of any other corporation, association, partnership or firm if the use of that name would be likely to confuse or mislead unless: (i) in the case of a corporation, it undertakes to dissolve or

change its name to a dissimilar name within six months after registration of the business name; and

(ii) in the case of an association, partnership or firm, they undertake to cease to carry on its business or activities, or to change its name to a dissimilar name within six months after the filing of the registration of the business name.

(b) suggests or implies a connection with government. (c) suggests or implies a connection with a political party or

leader of a political party. (d) suggests or implies a connection with a university or a

professional association recognized by the laws of Canada or a province of Canada, unless the university or professional association concerned consents in writing to the use of the proposed name.

(e) is identical to a business name reserved pursuant to The Business Names Registration Act.

There are two principal exceptions to keep in mind when considering whether or not a business name has to be registered under The Business Names Registration Act:

(a) a business name does not have to be registered where a person is practicing a profession where the right to practice that profession is regulated by the governing body of that profession under an Act or to a person or



class of persons exempted under the provisions of The Business Names Registration Act by regulation. An example of this would be lawyers and law firms which are regulated under The Legal Profession Act; and

(b) registration under The Business Names Registration Act also does not apply to an individual, or to a partnership, joint venture or syndicate composed of two or more individuals, where the sole business is the primary production of agricultural products.

Registration under The Business Names Registration Act will expire at the end of three years from the date of registration, and any renewal of registration will expire three years from the date of the renewal of registration. Registration of a business name may be renewed at any time within three months before the expiry date of the registration. The Corporations Branch in Regina will send out the renewal form in advance of the expiration date.

One other thing to keep in mind is that if the business name or some part of the business name is so important to your client that it be protected on a national basis, consideration should be given to the possibility of registering the trade name under the Trade-marks Act.

Partnerships Partnerships are governed by The Partnership Act, R.S.S. 1978, c. P-3, with the rules of equity and common law remaining in force (unless inconsistent with the Act (section 111)).

Indicia of Partnership A partnership is defined in section 3(1) of The Partnership Act to be the relationship that subsists between persons carrying on a business in common with a view of profit. Thus, there are three components to the definition of partnership. Firstly, there must be a business. Secondly, the business must be carried on in common. Thirdly, the business must be engaged in with a view of profit.

Business is defined under section 2(a) of The Partnership Act to include every trade, occupation or profession. Thus, the definition is very broad and would include most forms of commercial activity.


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The parties must carry on a business in common in order for there to be a partnership. As such, neither an employer-employee relationship, nor a principal-agent relationship, nor a creditor-debtor relationship would not constitute a partnership. Similarly, the relationship of co-owners of properties does not of itself create a partnership (section 4, Rule 1) and the sharing of gross returns would not of itself create a partnership (section 4, Rule 2). The relationship between members or shareholders of a company or association does not constitute a partnership either (section 3(2)).

The third criteria necessary to establish a partnership is that there be a view of profit. Put simply, if the activity engaged in is not profit-oriented, but, rather is cultural or social, there will not be a partnership. It is not uncommon for the courts to have to determine whether or not a particular relationship constitutes a partnership. In all instances, the critical issue will be the intention of the parties as disclosed by their agreement and conduct.

Forms of Partnership The Act contemplates three types of partnerships:

• ordinary; • limited; and • limited liability.

Ordinary Partnerships Basic Principles / Liability

Basic principles governing ordinary partnerships are:

• a partnership is not a legal entity, separate from its partners; • each partner is an agent of the firm and of the other partners

for the purpose of the business of the partnership (section 7);

• each partner of a firm is liable jointly with the other partners (to the full extent of the partner's personal assets) for all debts and obligations of the firm while he or she is a partner (section 11);

• a firm is liable and each partner is jointly and severally liable, for any penalty or loss or injury caused to a non-partner by the wrongful act or omission of a partner acting in the ordinary course of business, or with the authority of the co-partners, to the same extent as the wrongdoing partner (sections 12 and 14); and




• the remaining partners of the firm can avoid liability where a partner has no authority to act for the firm in a particular matter if the person with whom the partner is dealing knows that he has no authority or does not know or believe him to be a partner (section 7), or where a restriction is placed on the power of a partner to bind the firm and a third party has notice of that restriction (section 10).

Business Name

Persons who have entered into partnership are collectively called a "firm" and the name under which the business is carried on is called the "firm name" (section 2). If the partnership is going to operate under a business name, a declaration should be filed under The Business Names Registration Act in Form A.

Relations Between Partners

Sections 21 to 33 of The Partnership Act set out certain implied terms of the partnership in respect to the relationship of the partners to one another. These mutual rights and duties may, however, be varied by the consent of all the partners express or implied (section 21). Some of the more important implied rules are:

(a) all partners are entitled to share equally in capital and profits and must contribute equally towards losses (section 26, Rule 1);

(b) the firm must indemnify every partner for payments or personal liabilities incurred by the partner in the ordinary and proper conduct of the business of the firm or in or about anything done necessarily for preservation of the business or property of the firm (section 26, Rule 2);

(c) every partner may take part in the management of partnership business (section 26, Rule 5);

(d) no partner is entitled to remuneration for acting in the partnership business (section 26, Rule 6);

(e) no person may be introduced as a partner without the consent of all existing partners (section 26, Rule 7);

(f) any differences to ordinary matters are to be settled with a majority vote (section 26, Rule 8);

(g) no change may be made in the nature of the partnership business without the consent of all existing partners (section 26, Rule 8); and



(h) unless expressly agreed, a majority of the partners cannot expel a partner. (See Diefenbacher v. Young (1991), 1 B.L.R (2d) 161, [1991] O.J. No. 398 (QL) (Ont. Ct. (Gen. Div.); var’d on other grounds at (1995), 123 D.L.R. (4th) 641, (1995), 22 O.R. (3d) 641 (Ont. C.A.). Also, see section 27 of The Partnership Act.)

Dissolution of the Partnership

Sections 34 to 46 of The Partnership Act deal with dissolution of the partnership. In the absence of an express agreement to the contrary, a partnership is dissolved:

(a) at the end of a fixed term if entered into for a fixed term (section 34(a));

(b) at the termination of a venture or undertaking if entered into for a single venture or undertaking (section 34(b));

(c) if entered into for an undefined time by a partner giving notice to the others of an intention to dissolve the partnership (section 34(c)); or

(d) the death or bankruptcy of a partner (section 35).

A partnership will also be dissolved if an event occurs making it unlawful for the business of the firm to be carried on (section 36). In addition, section 37 of the Act provides that a court may decree the dissolution of the partnership:

(a) where a partner is of permanently unsound mind;

(b) where a partner other than the partner suing becomes permanently incapable of performing his part of the partnership contract;

(c) where a partner other than the partner suing has been guilty of conduct which, in the opinion of the court, is calculated to prejudicially affect the carrying on of the business of the firm;

(d) where a partner other than the partner suing willfully or persistently commits a breach of the partnership agreement or so conducts himself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business and partnership with him;

(e) where the business of the partnership can only be carried on at a loss; or



(f) wherever a court considers it just and equitable that the partnership be dissolved. An example would be deceit by a partner. (See Kucher v. Moore (1991), 3 B.L.R. (2d) 50, [1991] O.J. No. 1326 (QL) (Ont. Ct.)

Taxation

Ordinary partnerships are not taxable entities. The income or loss of the partnership is determined at the partnership level. From the partnership level, the income or loss is allocated among the members of the partnership.

GST

While a partnership is not considered to be a taxable person for income tax purposes, it is for the purposes of the GST. For the purposes of the GST, a "person" includes a partnership (Excise Tax Act, section 123(1)). The partnership (as opposed to each of those persons making up the partnership) can register for the GST. As such, the partnership itself would file a tax return for the purpose of making any payments to the government on account of the GST or, alternatively, receiving any refund of GST.

Precedents

A Partnership Agreement Checklist and a Partnership Agreement is included in the precedents for this section. A Model Partnership Agreement is also available for a small fee from the Canadian Bar Association. Information on the purchase of this annotated agreement can be found at www.cba.org under the heading “Publications”.

Limited Partnerships General

A limited partnership, like an ordinary partnership, is governed by The Partnership Act. The rules of equity and common law apply to the limited partnership relationship unless they are inconsistent with the provisions of The Partnership Act (section 111). A limited partnership consists of one or more persons who are “general partners” and one or more persons who are “limited partners” (section 50(2)).

Essentially, a limited partnership has all the characteristics of a general partnership except for one very significant difference - in




limited partnerships only the "general partner" is liable for the obligations of the partnership. The "limited partners" have no liability beyond the amounts they contribute or which they agree to contribute to capital.

Over the past decade, the establishment of limited partnerships has become a very popular alternative to incorporation. The main reason for this has been the ability to allocate tax losses to the general partners of the limited partnership while at the same time providing limited liability to the limited partners. As long as the general partner is a corporation, all participants who are limited partners would have the protection of limited liability. That is, if the partnership business failed, the limited partners would lose their investment and if a corporation were the general partner, the general partner would, of course, have limited liability to the extent of its assets.

Formation

In establishing a limited partnership in Saskatchewan, look to section 49 to section 75 of The Partnership Act (“PA”) and section 15 to section 21 of The Business Names Registration Act. A limited partnership is formed when the business name of the partnership is registered pursuant to section 6 and section 7 of The Business Names Registration Act, and a Declaration is filed in accordance with section 16 of that Act, which is essentially a list of the basic terms necessary in any limited partnership agreement. Upon successful application, a certificate will be issued for the limited partnership, which incorporated the terms outlined in the Declaration.

Important Characteristics

There are a number of matters that you must be aware of when considering the formation of a limited partnership:

• The general partners are responsible, as ordinary partners are, for all of the liabilities of the partnership (PA, section 56). A limited partner, however, is only liable for the obligations of the limited partnership to the extent of the amount of money or other property that the limited partner contributed or agreed to contribute to the capital of the limited partnership (PA, section 57).

• As long as the limited partner remains a passive investor sharing only in profits in proportion to his or her contribution to the limited partnership, the limited partner will enjoy limited liability. Once the limited partner begins to take part in the control of the business however, he or she risks losing the benefits of limited liability. (PA, section



64). Be careful of a situation where the general partner of a limited partnership is a limited company, and active directors or officers of that limited company also happen to be limited partners. In such circumstances, the limited partners could be considered to have taken part in the control of the business of the limited partnership and thereby lose their limited liability. (See, for example, Haughton Graphic Ltd. v. Zivot et al (1986), 33 B.L.R. 125, [1986] O.J. No. 288 (QL) (Ont. H.C.J..), aff’d (1988), 38 B.L.R. xxxiii, [1998] O.J. No. 2957 (QL) (Ont. C.A.).)

• Limited partners in relation to one another share equally in returns of capital and in profits in proportion to the respective amounts of their claims. The limited partners may agree, however, that one or more limited partners may have priority over other limited partners with respect to returns of contributions, compensation by way of income or any other matter, but the existence of and nature of the agreement shall be stated in the declaration (PA, section 61).

• A limited partner's interest in the partnership is personal property (PA, section 54(2)).

• A limited partner's interest is assignable and devolves on death (PA, sections 66 and 68).

• The retirement, death or mental incompetence of a general partner dissolves the partnership unless the business is continued by the remaining general partners pursuant to a right to do so stated in the certificate or with the consent of the remaining partners (PA, section 67).

Taxation

Limited partnerships are not taxable entities. The income or loss of the partnership is determined at the partnership level. From the partnership level, the income or loss is allocated among the members of the partnership.

When dealing with a limited partnership, there are restrictions on the amount of losses that can be allocated to limited partners. The general rule is that a limited partner’s share of partnership losses for tax purposes do not exceed the limited partner’s “at-risk amount” in respect of his/her/its partnership interest. Essentially, the “at-risk amount” of a taxpayer’s partnership interest is the amount of money or other property paid to the partnership for the interest in the partnership (see, generally, PA sections 96(2.1) to (2.7)).



Extra-provincial Limited Partnerships

From time to time, limited partnerships may be set up in other jurisdictions. If these limited partnerships carry on business in the Province of Saskatchewan, it is possible to extra-provincially register these limited partnerships in this province. Generally see The Partnership Act, sections 75.1 to 75.4, and The Business Names Registration Act, sections 21.1 to 21.4.

Precedents

A sample Declaration of Limited Partnership and a sample Limited Partnership Agreement is included in the precedents for this section.

Limited Liability Partnerships General

Members of certain professions are permitted to carry on business under limited liability partnerships (“LLPs”). Where one of the LLP partners is negligent, the other partners are shielded from personal liability in excess of their share in the partnership’s assets.

Limited liability partnerships are governed by The Partnership Act. LLP legislation is a response to the expansion of professional liability, caused by the application of “neighbourhood principle” and the availability of damages for economic loss. As with limited partnerships, LLPs provide a degree of liability protection for some partners. But, where limited partnerships’ law developed to protect silent partners from personal liability for partnership obligations, LLPs are supposed to shelter professionals in modern, compartmentalized partnerships from personal liability for mistakes by other partners.

Liability

The key provision respecting LLPs is section 80. Distinguishing between partnership and personal liability, it states that a partner is not personally liable for a partnership obligation solely by the fact of being a partner (PA, section 80(1)). The drafters seem to intend this rule to apply to both tort and contract claims (PA, section 80(1)(b)), thus broadening the “liability shield” farther than Alberta and Ontario Partnership legislation. Further, a



partner does not have to indemnify the partnership for these sorts of obligations (PA, section 80(1)(c)).

Note that the limitation of liability applies prospectively - that is to obligations arising after the partnership becomes an LLP. For contractual obligations, it is the date of the contract formation, not breach, that is important, so that liability limitations only apply to contracts entered into after the partnership obtains its new status (PA, section 82).

Besides the express exclusions of liability, the LLP provisions set out express inclusions of liability. A partner’s contribution to the partnership is available to creditors (PA, section 80(3)). As well, in order to provide some relief from the “full shield” approach in Saskatchewan, the new provisions make partners personally liable in terms of those statutory obligations for which a corporate director would be liable if the partnership were a corporation (PA, section 81(1)).

Attributed “director” liability may also apply to any corporation that is a partner in an LLP. In such a case, there is a further imputation of liability from the corporate partner to its directors, who are then liable as if the partnership as a whole was a corporation and they were its directors (PA, section 81(2)).

Most importantly, individual partners are personally liable for their own negligent or otherwise wrongful acts or omissions (PA, section 80(2)). In other words, particular partners who cause losses are personally liable for them and do no enjoy the limited liability; but partners who have had nothing to do with the loss are not personally responsible. As noted, The Partnership Act states that the individual contributions of each partner are available to third parties (section 80(3)) and it seems implicit that a party can still sue the partnership as a whole for acts of negligence by certain partners.

Formation

Unlike limited partnerships, LLPs do not require a new partnership structure or any differentiation between silent and active partners. In return for limited of liability, the partnership simply has to register, make public its new status and submit to a few new regulations, most of which involve distribution of partnership assets. Registration is open to all professions regulated by law (PA, section 86(1)) in which the governing body of the profession does not outlaw such a form of business organization. In Saskatchewan, The Legal Profession Act permits law firms to operate as LLPs. To register, the applicant has to provide the Registrar with the name of the partnership, a



description of the eligible professions in which the partners practice, the name and address of the partner designated as the

“representative” and the mailing address of the partnership (PA, section 86(4)). The applying partnership also must present the Registrar with a statement from the professional governing body certifying that the partnership and its partners meet its regulatory requirements for registering as an LLP (PA, section 86(4)(f)).

After registration, the partnership has to notify its clients of its change of status and the resulting implications for liability (PA, section 89). Further public notification results from the requirement to include one of the following terms in the partnership name: “Limited Liability Partnership”, “LLP”, “Société à Responsibilité Limitée” or “SRL” (PA, section 95(1)). The partnership has to keep a list of partners and make it available to the public on demand, and the Registrar has prescribed certain annual reporting requirements in the regulations (PA, sections 91 and 93). As with limited partnerships, the LLP provisions include restrictions on distributions to partners at the expense of creditors (PA, sections 83 to 85).

Extra-provincial LLPs

A non-Saskatchewan LLP may extra-provincially register in Saskatchewan when, in its home jurisdiction, it has a status equivalent to a Saskatchewan LLP and when the partners carry on an eligible profession (PA, section 98). Although the law of the home jurisdiction governs the extra-provincially registered LLP in terms of internal affairs and organization, and even in terms of partnership obligations to third parties, its liability protection in Saskatchewan will not be greater than a Saskatchewan LLP would enjoy. Note that similar provisions in the partnership legislation of other jurisdictions mean that Saskatchewan LLPs may not enjoy their “full shield” protection when operating in the rest of Canada or North America.

Joint Ventures General A joint venture is a common business undertaking founded on agreement between two or more persons (which may include corporations) to contribute to an undertaking. It is usual, although not essential, that a joint venture be limited to one specific project, for instance, the purchase and operation of a parcel of real property or the construction of a single project. Once the project



has been completed, the joint venture terminates and any income is distributed or losses are paid in accordance with the agreement.

A joint venture is often formed to carry out a project too onerous to be accomplished by a small group, or where the parties want to avoid forming a new corporation involving share distributions and the usual corporate arrangements.

The precise meaning of a “joint venture” is elusive. A joint venture has been described as a relationship falling short of a partnership. It would appear that the following factors must be present in order for a joint venture to exist:

(a) a contribution by the parties of money, property, effort, knowledge, skill or other assets to a common undertaking;

(b) a joint property interest in the subject matter of the venture;

(c) a right of mutual control or management of the enterprise;

(d) expectation of profit, or the presence of “adventure”, as it is sometimes called;

(e) a right to participate in profits; and

(f) most usually, a limitation of the objective to a single undertaking or ad hoc enterprise.

(Central Mortgage & Housing Corp. v. Graham (1973), 13 N.S.R. (2d)183)

Joint venture agreements are often used in real estate projects, mineral exploration and drilling ventures, and farming ventures. Joint venturers owe fiduciary obligations to each other similar to those owed by partners. In general, these fiduciary duties involve reciprocal obligations of good faith and loyalty.

In many ways, a joint venture is indistinguishable from a partnership. Therefore, it is important that a joint venture is properly established. A well-drafted joint venture agreement will contain a provision to negate any partnership implications between the parties. However, such a clause will have little or no effect if the relationship between the parties is in fact a partnership in accordance with the common law and The Partnership Act. If a partnership is created, then the parties' liability to third parties dealing with the joint venture will be the same as that of a partner under the Act.

All joint venture agreements should include suitable indemnity clauses to protect the parties from third party claims premised





upon the existence of a partnership. If the parties intend to rely on indemnities, joint venturers with sufficient resources to cover

any losses should be the only parties to the venture. Clients must be aware of the potential exposure to liability, despite having a carefully drawn agreement. In many cases, the parties fund and operate the venture through holding companies in order to reduce personal exposure to losses.

Taxation For income tax purposes, a joint venture is not a taxable entity. In this way, it is similar to a partnership. Each joint venturer takes into account its share of the income or loss of the venture. However, there are important distinctions between the taxation of a joint venture and a partnership:

(a) Under the Income Tax Act, the income of the enterprise conducted by a partnership is determined at the partnership (as opposed to the partner) level. As such, if there is depreciable capital property in the partnership, all capital cost allowance (or in other words, tax depreciation) must be taken at the partnership level. Thereafter, any income or loss of the partnership is allocated to the members of the partnership. There is no concept, as far as a joint venture is concerned, of calculating the income from the enterprise at the level of the joint venture (as opposed to the joint venturers). Thus, if you were dealing with three equal joint venturers, each of the three will calculate their own income or loss from the particular venture. As far as capital cost allowance is concerned, each of the joint venturers will be free to take as little or as much (up to the amounts prescribed by the Regulations to the Income Tax Act ) as he/she/it wishes.

(b) Another distinction for income tax purposes between a partnership and a joint venture is that when a person is a member of a partnership, for tax purposes they are considered to own an interest in the partnership. Generally speaking, this interest will be non-depreciable capital property. A sale of it will usually yield a capital gain or capital loss. The joint venturer, on the other hand, is not considered to own an interest in anything other than the actual assets of the enterprise being carried on through the joint venture. Thus, if you have a real estate joint venture, if a joint venturer in these circumstances sold out his/her/its interest in the joint venture, there would likely be income gains/losses (in addition to possible capital



gains/losses) as a result of a recapture of depreciation on the building under section 13 of the Income Tax Act.

(c) One other distinction is that while a partnership is not considered to be a person for income tax purposes, it is considered to be an entity separate from the partners themselves. As such, when property is transferred to a partnership, there can be deemed income and capital gains unless an election under section 97(2) of the Income Tax Act is made to defer or avoid the same. On the other hand, if you have a joint venture, there are no income or capital gains to be concerned about when property is contributed by the joint venturers for use in the enterprise of the joint venture.

GST Section 273 of the Excise Tax Act allows an election to be made in prescribed form (GST 21: “Election to Have Joint Venture Operator Account for GST”) in a joint venture to allow the “operator” to be responsible for accounting for the GST and all purchases and sales made through the joint venture. This election is available to joint venturers which explore or exploit mineral deposits or for a “prescribed activity”. Under the Joint Venture (GST) Regulations, the only prescribed activity currently deals with real estate development.

Corporations A corporation is a creature of statute, separate and distinct from its shareholders or members. In Saskatchewan, a corporation can be incorporated provincially pursuant to The Business Corporations Act, or federally, pursuant to the Business Corporations Act . For more information on corporations, please refer to Sections 2 and 3 of these materials.

Co-operatives A co-operative is a structure that can be used for either not-for-profit or for-profit commercial business undertakings. Cooperatives are governed by The Co-operatives Act, 1996, S.S. 1996, c. C-37.3.


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Section 3 of The Co-operatives Act, 1996 describes the characteristics of a cooperative:

3 For the purposes of this Act, a body corporate is organized, operated and administered on a co-operative basis where:

(a) no member or delegate has more than one vote; (b) no member or delegate is entitled to vote by proxy; (c) its business is carried on primarily for the benefit of its members; (d) its membership is voluntary and available, without any artificial restriction or any unlawful basis of discrimination, to any person who can use its services and is willing to accept the responsibilities of membership; (e) the limit on the interest or dividends on share capital that it pays does not exceed the prescribed rate; and (f) any surplus or saving arising out of its operation is:

(i) used to develop its business; (ii) used to provide or improve common services to members; (iii) distributed among members in proportion to their patronage with the co-operative; (iv) used to educate its members, officers or employees or the general public in the principles and techniques of economic and democratic co-operation; or (v) distributed to non-profit, charitable or benevolent organizations.

New Generation Co-operatives The New Generation Co-operatives Act, S.S. 1999, c.N4-001 provides for a new type of co-operative that was designed specifically for organizations that:

• produce, process or market agricultural products; or • provide services to persons engaged in those

undertakings. The key difference between New Generation Co-operatives (“NGCs”) and ordinary co-operatives is that NGCs issue shares that are linked to delivery obligations. In addition, unlike traditional co-operatives, NGCs can restrict their membership.


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Not-for-profit Organizations

These organizational structures include associations, societies and not-for-profit companies.

Associations/Societies The terms “association” and “society” are not terms of art in Saskatchewan. They can be used to describe a number of business organizations. An association or society is a group of persons acting together for a common goal or purpose and is created by an agreement between its members. It has no legal status and members are personally liable to the association’s/society’s creditors.

Non-profit Corporations Non-profit corporations are governed by The Non-profit Corporations Act, 1995, S.S. 1995, c.N-4.2. A non-profit corporation (“NPC”) is a legal entity separate from its members and directors formed for purposes other than generating a profit for its stakeholders. Similar to for-profit corporations, members of an NPC are protected by limited liability.

There are two forms of NPCs: Membership NPCs and Charitable NPCs. The two forms are distinguished by their objectives:

• Membership NPCs exist for the benefit of their members. Examples of membership NPCs include golf clubs, special interest organizations and daycares.

• Charitable NPCs are formed to benefit some segment of the general public. In order to obtain charitable status, a NPC must qualify as a charity within the meaning of the Income Tax Act and must apply to Canada Revenue Agency to be registered. Registered charities are exempt from income tax and can issue official tax-receipts to donors.



Choosing a Form of Business Organization

In selecting one business form over another, consider their various characteristics. Each business form has its advantages and disadvantages.

Limited Liability and Nature of Business In ordinary partnerships, each partner is a co-owner of the partnership assets and jointly liable to the full extent of his or her assets for the liabilities of the business. In a limited partnership only the general partner has unlimited liability. A limited liability partnership minimizes partnership exposure. The unlimited liability aspects of partnership may be avoided by inserting a limited company as a partner instead of an individual. This is equally applicable to limited partnerships where a general partner, to avoid the results of unlimited liability, is a corporation.

In a corporation, a shareholder's liability is limited to the investment. In a corporation there is, however, some personal exposure for directors, officers and major shareholders created by certain statutory enactments such as payment of wages, filing of tax returns, and improper loans.

If a substantial uninsurable risk is possible, consider a limited partnership, LLP, or corporation. This will limit liability to the investment and not expose personal assets.

Perpetual Existence A corporation continues notwithstanding the death or withdrawal of a shareholder or a director. The remaining director(s) can carry on the business. Major agreements remain in effect. Conversely, the death of a sole proprietor spells the end of the business. The death of a partner may result in the dissolution of a partnership (in the absence of an agreement to the contrary).

A corporation with perpetual existence is usually preferable to a partnership or sole proprietorship, which, in the absence of special arrangements, relies on surviving proprietors.



Number of People Involved If there are a large number of investors, an incorporated structure is usually preferred.

Corporations generally have well-established rules for internal control and procedures, as well as limited liability and flexibility of financing. It is easier to transfer the ownership of shares in a corporation than it is to transfer an interest in a partnership.

Shareholder Relations If there are to be several degrees of control and risk taking, with some investors taking the role of lenders, incorporation with various classes of shares can be preferable.

Subject to the remedies and relief available under SBCA (i.e., oppression and dissenting shareholder provisions) minority shareholders are subject to the will of the majority, with the result that their shares are not necessarily marketable (in the absence of a buy-sell arrangement on retirement of a shareholder).

Borrowing Requirements Lenders look first to the ability of a borrower to repay any loans. Bankers for new corporations with few assets are often reluctant to lend significant amounts. By contrast, it may be easier for those doing business under a partnership to qualify for a loan because the individual partners are fully responsible for the partnership’s debt obligations, affording a bank more assets as collateral. Commonly, lenders to small corporations will require personal guarantees by the principal shareholders. This negates, in many cases, the advantage of incorporating a limited liability corporation.

Government Grants Some grants and loans are available only to corporations while others are available to all types of business. The availability of government funding may be a determining factor in how the business will be organized.



Estate Planning While outside the scope of these materials, consider that estate planning is a relevant consideration in selecting a form of business.

Employee Participation Incorporation provides the most convenient form of business organization where the parties want to benefit employees by having them share in growth and profits but not in management.

Costs A carefully drawn partnership agreement can cost as much in legal fees as incorporation. However, registration fees for incorporation are higher. Also of note is that partnership agreements can be altered by the parties fairly simply, whereas any major changes in a corporate structure requires appropriate resolutions and filings with the Corporations Branch. Generally, ongoing maintenance costs of a business are dependent upon the complexity of the organization, be it a partnership or a corporation.

Flexibility Parties to a partnership agreement have considerable latitude in structuring the arrangement between them. Incorporation provides considerable flexibility as well, however there are more statutory requirements. Incorporation generally provides greater flexibility for income tax and estate planning.

Income Tax In selecting the proper form of business, one of the most important issues is tax. When consulted about a suitable form of business for your client, seek the assistance of a specialist in the tax field – either a lawyer or an accountant.



PARTNERSHIP AGREEMENT CHECKLIST 1. Date: 2. Describe Partners - Partner can be a corporation. In the event the partner is an individual, make certain that the partner is at least 18 years of age. 3. Firm Name - The firm must carry on business under this name. In the event there is a possibility of conflict with another name, this could result in loss of the name or an injunction or a passing-off action. Depending on the nature of the name, consider a search with the Trade-Marks Office and registration under the Trade-marks Act. 4. Term of Partnership - Provide for date of commencement. Unless the term is specifically set out in the agreement, the partnership term will be subject to sections 34 to 37 of The Partnership Act. 5. Place of Business - Only required if there is a desire to place a geographical limitation on the partnership. 6. Description of Business - Establish the extent of the agency of each partner to one another and to and for the firm. Will be relevant to non-competition clause. 7. Contribution of Capital - May specify a particular amount or percentage. May provide that for future contributions which might be allocated to be by way of a percentage of profits being retained by the partnership.

In the event you are dealing with a limited partnership, a change in contributed capital would require a new Declaration. In the event there is no specific agreement regarding contribution of capital, all partners must contribute equally. 8. Division of Profits - In the absence of an agreement, all partners share equally (Section 26, Rule 1). Consider any means by which profit share may be reviewed on a periodic basis along with any criteria which might be utilized so as to effect a revision of profit allocation. 9. Accounting and Other Records - Describe the nature of the records which are to be prepared, maintained and distributed to partners. Records must be sufficient for income tax purposes and effective business operation. In the event there is no agreement, each partner has access to the partnership books (Section 26, Rule 9). 10. Auditor - Provide for the appointment of an auditor if same is warranted. 11. Fiscal Year - Discuss with clients and their accountant.

Saskatchewan CPLED Program Corporate–P–1–1


12. Accounting Principles - Consider issues such as valuation of assets, what constitutes capital, what constitutes income, rates of depreciation, interest on advances and capital, write-offs, reserves, what constitutes valid partnership expenses, calculation of profit, etc. 13. Banking - Who will be the banker of the firm? What forms of accounts will be maintained? Who will be entitled to sign cheques? Who can borrow on account of the firm’s assets? Who can pledge or secure the firm’s assets? 14. Provision not to allow partners to charge their partnership interest with non-partnership related obligations. 15. Each partner is to devote full time and attention to the firm. Provide for other income which may be included as partnership income, (e.g., directors’ fees, royalties, teaching salaries, honourariums, etc.). Section 31 of The Partnership Act provides that every partner must account to the firm for any benefit derived without the consent of the other partners from any transaction concerning the partnership or from any use by him of the partnership property, name or business connection. 16. Management - Designate the individual in charge of sales, administration, production. In the absence of agreement, all partners are entitled to share in management (Section 26, Rule 5). Provide for the procedure regarding meetings, notices, voting, quorums, etc. In the event it is a limited partnership, only the general partner may manage. May provide for specific matters or transactions to be dealt with by special majorities or unanimity (e.g., sale or encumbrance of assets out of the ordinary course of business). 17. Partnership Contracts - Who has authority to execute on behalf of the partnership? In the event you are dealing with a limited partnership only, the general partner can sign. 18. Drawing Arrangements - How often and in what quantities? Can the partnership borrow so as to provide for draws in anticipation of future profits? 19. Retirement, Death or Bankruptcy of a Partner (Sections 28 and 35) - Subject to any agreement, any partner may determine the partnership at any time on giving notice of his intention to do so to all the other partners and any partnership is dissolved as regards all the partners by the death or bankruptcy of a partner. In the event the partnership is to continue, there should be provision for the firm or remaining partners to purchase the partnership interest of the partner leaving the firm, valuation of such interest, means and timing of payments, etc. 20. Non-Competition Clause - Must be reasonable as to area, time and nature of business. Provide for liquidated damages in the event of breach.

Corporate–P–1–2 Saskatchewan CPLED Program


21. Sale of Partnership Interest - Section 33(1) of The Partnership Act provides that an assignment by a partner of his share in the partnership does not entitle the assignee to interfere in the management or administration of the partnership, but only entitles the assignee to receive the share of profits to which the assigning partner would have otherwise been entitled. Generally speaking it is best to prohibit such assignment, however it may be appropriate in the event the remaining partners refuse to purchase the interest of the departing partner the value of such interest is, however, somewhat questionable given the terms of section 33. 22. Expulsion of Partner - In the absence of an express agreement providing for expulsion, no majority of the partners can expel any partner (section 27). 23. Grounds for Dissolution (see sections 34 to 37) - Unless an agreement exists to the contrary, death, insolvency and notice of a partner to dissolve will dissolve a partnership. Dissolution is automatic in the event the partnership becomes illegal or by reason of court order pursuant to section 37. 24. Admission of a New Partner - Subject to agreement, no person may be introduced as a partner without the consent of all existing partners (Section 26, Rule 8). Provide for the necessary majority on the vote, the necessary contribution to be made to capital by the new person and the percentage of capital that person will then receive. 25. Obligations to Purchase - For situations where the remaining partners will be forced to purchase the partnership interests of departing partners. These situations may include retirement, expulsion, death, bankruptcy, disability, etc. Provision may be made for rights of first refusal, options to purchase, buy -sell, etc. 26. Valuation - The nature of the partnership business will usually determine the manner of valuation of a partnership interest. Whether it be a multiple of earnings, multiple of assets, the extent to which good will is to be taken into account, depreciation multiples, along with many other factors will all have to be taken into account. Do not allow valuation to be based upon future profits as the retiring partner might then be considered to be a continuing partner. Provide for registration of all partnership property in the name of the firm or in the name of one or more partners. In the event the latter is chosen, the property should be defined with as much specificity as possible. 27. Limitation of Liability of General Partners to Limited Partners. 28. Insurance - The form and specifics of the policies, life, fire, boiler, theft, liability, etc. Obligation of each partner to purchase a stipulated amount of life insurance on the lives of others sufficient to fund obligations to purchase upon the demise of a partner.



29. Arbitration of Disputes - One or three arbitrators -arbitration condition precedent to legal action. Award final and binding. Subject to The Arbitration Act of the Province of Saskatchewan. 30. Registration - Provide for appropriate registration under The Business Names Registration Act. Attach limited partnership declaration to be initialed by all partners. 31. Applicable Law. 32. Binding on heirs, executors, administrators and assigns. 33. No modification without consent in writing.



PARTNERSHIP AGREEMENT THIS PARTNERSHIP AGREEMENT MADE EFFECTIVE THE _____ DAY OF __________, 20___. BETWEEN: ________________________________, a body corporate duly incorporated pursuant to the laws of the Province of Saskatchewan. (hereinafter referred to as “_______________”)

OF THE FIRST PART AND _______________________________, of _________________, Saskatchewan (hereinafter referred to as “_____________”)

OF THE SECOND PART AND ______________________________, of ________________, Saskatchewan (hereinafter referred to as “_____________”)

OF THE THIRD PART (hereinafter sometimes referred to individually as a “Partner” and

collectively as the “Partners”). WHEREAS: 1. The Partners desire to enter into a Partnership for the purposes and on the terms and conditions hereinafter stated. 2. _____________ is the Principal of _____________________ (and hereinafter is referred to individually as a “Principal”). NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:



ARTICLE 1.00 FORMATION 1.01 EFFECTIVE DATE The Partners have agreed to enter into Partnership to pursue the objectives of the Partnership commencing on the 1st day of January, 20__ (the "Effective Date"), on the terms and conditions set out in this Agreement. 1.02 PARTNERSHIP NAME The name of the Partnership shall be "_______________" (the "Partnership"), or such other name as the Partners may from time to time unanimously determine. The offices of the Partnership shall be located at _______________, Saskatchewan, or at such other location as the Partners may from time to time determine. 1.03 PURPOSE OF PARTNERSHIP The purpose of the Partnership shall be to carry on the business of farming and related businesses including the ownership of land, buildings and equipment related thereto. 1.04 SUBSISTENCE OF PARTNERSHIP The Partnership shall continue to subsist until dissolved in accordance with the terms of this Agreement. 1.05 ADDITIONAL PARTNERS LIMITED TO FAMILY Additional Partners may be admitted to the Partnership on the terms and conditions stated in this Agreement, but admission is restricted to Family Members or 100% family owned corporations, or family trusts where 100% of the beneficiaries are Family Members. Family and Family Members is limited to _______, _________, their children, and their children’s’ spouses; and the grandchildren of _________ and __________, and the spouses of the grandchildren of ________ and __________. Spouses means lawfully married spouse. Child/children mean the children born to ________ and ___________. Grandchild/grandchildren means children born to, or lawfully adopted by, a child of __________ and __________ and such child/spouse. ARTICLE 2.00 PARTNERSHIP OPERATION 2.01 PLACE OF MEETINGS All meetings of the Partners shall be held at the home quarter of _______________ and _______________ at ______________, Saskatchewan, unless otherwise agreed. Any Partner may participate in such meeting by way of telephone conference call, provided that each member is able to hear the others.



2.02 MEETING OF PARTNERS The Partners shall meet periodically, from time to time, at the call of any two of the Partners or at the call of ___________ alone, to deal with issues of a fundamental nature affecting the Partnership, their relations with one another, issues specifically reserved to them as Partners in this Agreement and any other matters which the Partners wish dealt with at a meeting of Partners. 2.03 At least seven (7) days’ notice of each meeting of the Partners shall be given to each Partner at the address specified herein. 2.04 WAIVER OF NOTICE A Partner may, in any manner, waive notice of or otherwise consent to a meeting of the Partners being held on less than seven (7) days’ notice. 2.05 QUORUM A Quorum for the proper conduct of the business of a Partnership meeting shall be two-thirds of the Partners; provided that no meeting of the Partners shall be deemed to be properly constituted unless each Partner has received or waived, notice of such meeting. 2.06 PASSING OF RESOLUTIONS/VOTING Resolutions of the Partners shall be passed, or enacted, upon a majority vote of the Partners. Votes at meetings of the Partners shall be given by each Partner or its Principal. Each Partner shall have one (1) vote for each percentage comprising the Partner’s Capital Interest of that Partner as designated in Section 5.03 hereof. At any meeting, a declaration by the Chairperson of the meeting that a Resolution has been carried or carried unanimously or by any particular majority or lost or not carried by a particular majority shall be conclusive evidence of that fact without proof of the number or proportion of votes recorded in favour of or against the motion. All Partnership matters shall be decided by majority vote unless specifically stated otherwise herein.

2.07 CHAIRPERSON OF PARTNERS’ MEETINGS The Chairperson of every Partnership meeting shall be ______________, or such person designated in writing by ___________. 2.08 REPRESENTATIVE OF PARTNERS The representative of each corporate Partner for the purposes of Partners' meetings shall be its Principal. The Principal shall be entitled to attend, represent and vote on behalf of the Partner at all Partners’ meetings.

2.09 DESIGNATION OF PRINCIPALS The designated Principal of ________________ is _______________.



2.10 EXECUTION OF INSTRUMENTS Any of _________ and __________ shall have the authority to sign notes, cheques, drafts and other obligations of the Partnership and execute all instruments necessary for the conduct of the business of the Partnership and the carrying out of the provisions of this Agreement. 2.11 A sale of all or substantially all of the assets of the Partnership or a merger of the Partnership with another partnership or person shall only occur upon a majority vote of all of the Partners. ARTICLE 3.00 PARTNERS’ DUTIES 3.01 PARTNERS’ DUTIES The Partners shall generally manage and direct the day to day operations of the Partnership within the parameters of the purposes of the Partnership including, inter alia, the following: (a) Creating a strategic plan for the business of the Partnership, and

implementing it, subject to the directions of the Partners; (b) Hiring, supervising, and terminating Partnership employees, and

engaging and discharging solicitors, accountants, consultants and other professionals for the Partnership's business;

(c) Implementing all policy decisions of the Partnership, and making routine

decisions in connection with the daily operations of the Partnership; (d) Creating and administering all matters pertaining to the financial

operations of the Partnership, including those related to deposit accounts, arrangements with financial institutions, receiving and disbursing funds on behalf of the Partnership, relationships between the Partnership and diverse financial institutions, trade creditors and the like, and paying the financial obligations of the Partnership, including salaries and other benefits payable to the employees of the Partnership;

(e) Creating, preparing and maintaining the books and records of the

Partnership, accounting systems for the operations of the Partnership, all necessary ledgers, accounts, financial statements and balance sheets in connection with the Partnership and its operations;

(f) Producing and distributing on a timely basis operating statements and

minutes of meetings of the Partnership meetings; and (g) Monitoring and supervising the fulfillment, on a day-to-day basis, by

the Partnership of its contractual obligations to third parties.



ARTICLE 4.00 CAPITAL CONTRIBUTIONS 4.01 CAPITAL ACCOUNT A capital account shall be maintained by the Partnership for each of the Partners. 4.02 INITIAL CAPITAL CONTRIBUTIONS The initial capital contributions of each Partner to the Partnership shall be based upon the fair market value of the property contributed to the Partnership by each of the Partners. The balance in each Partner’s capital account may vary from time to time. Each Partner's capital account shall be that Partner’s “Capital Account". 4.03 CONTINUING CALCULATION OF PARTNERS’ CAPITAL ACCOUNT The capital account for each of the Partners will be maintained by the Partnership. The Capital Account of each Partner shall be credited with:

(a) The initial capital contribution of the Partner, if any; (b) A subsequent contribution to the Capital Account of the Partner; (c) Any profits calculated in accordance with generally accepted

accounting principles (GAAP) of the Partnership allocated to the Partner. The Capital Account of each Partner shall be debited with: (i) all of that Partner’s draws and withdraws of capital; and (ii) all of that Partner’s share of the losses calculated in accordance

with GAAP of the Partnership. 4.04 PARTNERS’ CAPITAL INTEREST The interest of each of the Partners in the capital and assets of the Partnership, from time to time, after deduction of the outstanding aggregate balance of all Partners’ Capital Accounts shall be adjusted every two years, commencing January 1, 20__ or more often if required due to the departure of a Partner, restructuring of the Partnership, or introduction of a new Partner, which is referred to in this Agreement as each Partner’s Capital Interest. 4.05 ADDITIONAL CAPITAL CONTRIBUTIONS The Partnership, from time to time, by notice in writing, may require each of the Partners to contribute additional capital to the Partnership for capital expenses and/or working capital. Each Partner shall have thirty (30) days from the date of such notice to advance the sum required from each of the Partners to the Partnership. If any Partner (the "Defaulting Partner") fails or refuses to advance its share of the additional capital contribution required, and provided that the other Partners have made their required advances, any Partner (the "Contributor") may advance the Defaulting Partner's share of such capital contribution, and the Contributor shall have a first lien and/or charge upon the Capital Account and Capital Interest and on all other interests of the



Defaulting Partner in the Partnership. Such Defaulting Partner shall not be entitled to its proportionate share of the Partnership profits or otherwise until the Contributor has been recompensed in full for the capital advanced on behalf of the Defaulting Partner, together with interest at an annual rate equal to the Prime Lending Rate, from time to time, of the Bank of ___________, __________, Saskatchewan, plus one (1%) per cent, from the date of advance of the additional capital until the date of repayment. In addition, the Defaulting Partner, so long as it remains in default, shall not enjoy any of its rights to vote in respect of the Partnership business, and its Principal or representative on the Management Committee shall not be entitled to vote on any matter or business coming before the Management Committee, but for all such purposes, that person shall be deemed to have cast his or her vote in accordance with the vote of the majority of the other members of the Management Committee. 4.06 INTEREST AND DRAWINGS FROM CAPITAL ACCOUNT No interest shall be paid or payable in respect of a Partner's Capital Account, unless otherwise agreed by resolution of the Partners. No Partner shall be entitled to draw down its initial Capital Account, and/or any additions to its Capital Account, except in accordance with the terms and conditions of this Agreement, or by resolution of the Partners. ARTICLE 5.00 PARTNERSHIP INCOME 5.01 DISTRIBUTION OF PARTNERSHIP INCOME The net profits or losses of the Partnership for each fiscal year (the "Partnership Income") for accounting purposes, shall be calculated as soon as possible following the end of each fiscal year and in any event no later than one hundred twenty (120) days thereafter and shall be allocated among the Partners as follows: (a) ____________ _____ % (b) ____________ _____ % (c) ____________ _____ % or such other amounts in relation to each Partner, taking into account all of the circumstances applicable to each Partner, as the Partners may determine from time to time by majority resolution of the Partners. 5.02 PARTNERSHIP DRAWS Each of the Partners may draw monthly during the fiscal year of the Partnership such amounts as may be approved by the Partnership from time to time. Save as permitted in this Article, no further or other drawing shall be made by any Partners on account of its share of Partnership Income without the approval of the Partnership.



5.03 ALLOCATIONS OF CAPITAL COST ALLOWANCES OR TAX CREDITS All capital cost allowances and/or investment tax credits and/or other allowances in the nature of capital cost allowance or tax credits, howsoever arising in relation to the operations of the Partnership, are to be allocated in the proportion that the aggregate share of Partnership Income allocated during the same fiscal year to each Partner bears to the whole of the Partnership Income allocated amongst the Partners. 5.04 REIMBURSEMENT FOR EXPENSES Each of the Partners shall be entitled to be reimbursed for the reasonable expenses and disbursements incurred by him/her or it in furtherance of the business of the Partnership, such reimbursement to be effected on a monthly basis within such period of time following the end of each month as the Partners shall determine. Reimbursement is to be supported by delivery of a monthly expense statement by each Partner together with appropriate invoices, and it is to be subject to the approval of the Partners. ARTICLE 6.00 PARTNERS' OBLIGATIONS 6.01 OBLIGATIONS OF PARTNERS AND PRINCIPALS Each Partner and Principal shall at all times: (a) Show the utmost good faith to the other Partners in all matters relating

to the Partnership; (b) Devote their full time and attention to the business and affairs of the

Partnership except to the extent otherwise agreed to by the Partners; (c) Use their best endeavors to promote the Partnership business; (d) Duly and punctually pay and discharge their separate and private

debts and liabilities and keep the Partnership property and the other Partners indemnified against the same and against all actions, proceedings, costs, claims and demands in respect thereof; and

(e) Indemnify and save harmless the Partnership and the other Partners

from and against all actions, proceedings, costs, claims and demands arising from any breach by such Partner or Principal of the terms of this Agreement; and

(f) Conduct themselves in an appropriate manner so as to enhance the

business and purposes of the Partnership, and maintain and enhance its reputation.



6.02 GUARANTEES BY PARTNERS Unless otherwise specifically agreed to in writing by all of the Partners, no Partner shall be required to guarantee the repayment of any of the liabilities of the Partnership unless all Partners concurrently guarantee the same. 6.03 RESTRICTIONS ON PARTNERS, PRINCIPALS AND SHAREHOLDERS No Partner, nor any Principal, nor any shareholder of a Partner, without the prior approval of the Partners, shall:

(a) Engage directly or indirectly in any business in competition with the Partnership;

(b) Pledge the credit of the Partnership or incur any liability or lend any

monies on behalf of the Partnership outside of the ordinary course of the business of the Partnership;

(c) On behalf of the Partnership, buy or contract for the purchase or sale

of any real property outside of the ordinary course of business of the Partnership;

(d) Save as provided in Section 6.02, give any guarantee relating to the

Partnership outside of the ordinary course of the business of the Partnership;

(e) Enter into any bond or post bail or become a surety for any person or

knowingly cause or permit or suffer to be done anything whereby the property of the Partnership may be taken in execution or otherwise endangered outside of the ordinary course of the business of the Partnership;

(f) Assign, mortgage or charge any interest in the Partnership or any part

thereof or enter into any Partnership with any other person concerning such interest or any part thereof outside of the ordinary course of the business of the Partnership; or

(g) Compromise or compound or release or discharge any debt due to the

Partnership outside of the ordinary course of the business of the Partnership.

6.04 STRENGTH OF RELATIONSHIP The Partners, and their Principals, acknowledge that the strength of their relationship is based upon a spirit of mutual cooperation, full discussion, and compromise, and agree to maintain that philosophy in their relations with one another.



ARTICLE 7.00 RESTRICTION ON CONTROL AND SALE OF CORPORATE PARTNERSHIP INTERESTS 7.01 NO CHANGE IN CONTROL Each corporate Partner agrees that there shall be no change in control of that Partner, from and after the Effective Date, without the majority approval of the other Partners, which approval may be withheld in their sole discretion. 7.02 NO SALE BY SHAREHOLDERS The shareholder of each corporate Partner covenant and agree not to sell their respective shares in the Partner without first obtaining consent of the other Partners, which consent may be withheld in their sole discretion. In addition, each corporate Partner shall cause its services to be delivered to the Partnership by its Principal at all times during the existence of this Agreement, unless otherwise approved by a resolution of the Partners. 7.03 NO SALE BY PARTNERS Each Partner covenants and agrees not to sell its respective Partnership interest without first obtaining the unanimous consent of the other Partners, which consent may be withheld in their sole discretion. 7.04 SUBSEQUENT TRANSFEREE No sale of a Partnership interest shall be valid and effectual, notwithstanding anything else herein contained, unless the transferee agrees in writing to be bound by the terms and provisions of this Agreement, with any necessary small changes as required by the Partners to accommodate the addition of that transferee as a party. 7.05 TERMS OF SALE In the event of the disposition of a Partnership interest, the terms set out in Schedule "A" shall apply, unless otherwise agreed by the Partners by resolution. ARTICLE 8.00 ADMISSION, WITHDRAWAL AND EXPULSION OF PARTNERS 8.01 ADMISSION OF PARTNERS No Partner may be admitted to the Partnership without the prior majority approval of the Partners. The terms and conditions for admission of a new Partner shall be as determined by the Partners, subject always to paragraph 1.05.



8.02 EXPULSION OF PARTNER In the event that any of the following occur, namely:

(a) any or all of the shares held by a shareholder of a corporate Partner or the Partnership Interest of an individual Partner becomes subject to an order under, or pursuant to The Family Property Act of the Province of Saskatchewan or similar legislation of any Province having jurisdiction; or

(b) the Partner becomes insolvent or is adjudged a bankrupt; a receiver or

a receiver-manager as appointed for all or any portion of the Partner’s property; any or all of the shares held by a Principal in a corporate Partner are assigned to a Trustee in Bankruptcy or a receiver and manager is appointed for all or any portion of the property of a Principal; or

(c) the interest of a Partner in the Partnership is made subject to seizure

or execution by a sheriff, a secured creditor, or any other person or any of the shares held by a Principal Partner are made subject to seizure or execution by a sheriff, secured creditor or any other person;

(d) a Partner, or the Principal of a Partner, has failed to satisfy, fulfill and

perform or is in default of any of the terms and provisions of this Agreement (the “Default”) and such Default continues after thirty (30) day’s written notice specifying the nature of the Default has been given to such Partner and the Partner has not remedied the default or caused the Default to be remedied on or before the expiry of such notice;

then, on the happening of any such event, the Partners may expel that Partner by resolution of a majority of the Partners save and except for the offending Partner/Principal. In such case, the expelled Partner shall be entitled to: (a) its drawings to the date of expulsion on account of the Partnership

Income; (b) repayment of its Capital Account in ten (10) equal consecutive annual

installments, without interest, from the date of expulsion, and (c) payment in ten (10) equal consecutive annual installments of an

amount equal to two-thirds of the fair market value of its Capital Interest as at the date of expulsion, without interest. The fair market value of the Capital Interest shall be calculated in the manner described in Section 8.05.



8.03 VOLUNTARY WITHDRAWAL If any Partner wishes to withdraw from the Partnership, he/she or it shall give to the remaining Partners a minimum of one (1) year's notice in writing of its intention to withdraw. The effective date of withdrawal shall occur at the fiscal year end of the Partnership falling one (1) year after the date of delivery of the notice of withdrawal (the "Withdrawal Date"). The withdrawing Partner shall be entitled to payment, in the aggregate, of the following amounts: (a) Its drawings to the Withdrawal Date on account of the Partnership

Income; (b) Repayment of its Capital Account in ten (10) equal consecutive annual

installments commencing with the Withdrawal Date, together with interest thereon on the amount from time to time remaining unpaid at an annual rate equal to the Prime Lending Rate of the Bank of _________, __________, Saskatchewan, plus one (1%) per cent; and

(c) Payment in ten (10) equal consecutive annual installments of an

amount equal to the fair market value of its Capital Interest as at the Withdrawal Date, together with interest thereon on the amount from time to time remaining unpaid at an annual rate equal to the Prime Lending Rate of the Bank of ________, _________, Saskatchewan, plus one (1%) per cent. The fair market value of the Capital Interest shall be calculated in the manner described in Section 8.05.

8.04 INVOLUNTARY WITHDRAWAL In the event of the death or Total Disability of a Partner or the Principal of a Partner, unless the Partner’s estate or the corporate Partner whose Principal has died or becomes Totally Disabled provides a replacement acceptable to the Remaining Partners as a Partner or as a Principal within one hundred eighty (180) days of the death or Total Disability of such Principal or Partner, then the Partner or Partner whose Principal has died or has become Totally Disabled, shall be deemed to have withdrawn from the Partnership and the date of death of the Principal or the date of such Total Disability shall be deemed as the Involuntary Withdrawal Date. For the purposes of this Article, “Totally Disabled” or “Total Disability” means incapacity, caused by disease or bodily injury to perform any and every duty pertaining to the Partner or Principal’s occupation and duties as the Partner or Principal, as attested to by two duly qualified and licensed medical physicians practicing in the Province of Saskatchewan, and the date of such Total Disability shall be the date that the last duly qualified and licensed medical physician attests to the Total Disability of such Partner or Principal. The withdrawing Partner shall be entitled to payment, in the aggregate, of the following amounts:



(a) Its drawings to the Involuntary Withdrawal Date on account of the

Partnership Income; (b) Repayment of its Capital Account in ten (10) equal consecutive annual

installments commencing with the Involuntary Withdrawal Date, together with interest thereon on the amount from time to time remaining unpaid at an annual rate equal to the Prime Lending Rate of the Bank of _______, ________, Saskatchewan, plus one (1%) per cent; and

(c) Payment in ten (10) equal consecutive annual installments of an amount

equal to two-thirds of the fair market value of its Capital Interest as at the Involuntary Withdrawal Date, together with interest thereon on the amount from time to time remaining unpaid at an annual rate equal to the Prime Lending Rate of the Bank of __________, ___________, Saskatchewan, plus one (1%) per cent. The fair market value of the Capital Interest shall be calculated in the manner described in Section 8.05.

8.05 DETERMINATION OF FAIR MARKET VALUE To determine the fair market value of a Capital Interest, the Partnership shall instruct a chartered business valuator registered under the Canadian Institute of Chartered Business Valuators to make a determination as to the fair market value of the Partnership at the fiscal year end immediately prior to or ending on (if applicable), the date at which the calculation is to be made. For the purpose of determining the fair market value of a Capital Interest, the valuator shall deduct from the fair market value of the Partnership calculated by such valuator, the aggregate outstanding balance of all Partners' Capital Accounts (including the Capital Account balance of the expelled, withdrawing, or involuntarily withdrawing Partners). If possible, the Partnership shall instruct the valuator to complete the valuation of the Capital Interest within one hundred and twenty (120) days of the fiscal year end of the Partnership. The cost of the valuator shall be borne by the Partnership as a fiscal year end expense. If the expelled or withdrawing Partner and the remaining Partners do not agree with the determination of the fair market value of the Capital Interest by such valuator, then each of the expelled or withdrawing Partner and the other Partners (collectively) shall appoint an additional valuator, and the additional valuators so appointed together with the valuator appointed by the Partnership shall determine the fair market value of the Capital Interest, using such guidelines as the valuators may consider appropriate in the circumstances in consultation with the accountants for the Partnership (provided there is no deviation from the guidelines set out in this Section 9.05). In an event of disagreement among the valuators, it is agreed that the majority decision of the valuators shall be final and binding upon the Partners. It is the intention of the parties that the determination of the fair market value shall include the value of goodwill. Notwithstanding the foregoing, the valuator appointed by the expelled or withdrawing Partner and the valuator appointed by the other Partners may accept as binding any previous calculation of the fair market value of the Partnership, or of a Capital Interest, made by the Partners or Principals and agreed to by them in writing.



8.06 LIMITATION ON PAYMENTS Notwithstanding the provisions of Sections 8.02, 8.03 and 8.04, the obligation of the Partnership to make payments to an expelled or withdrawing Partner in any fiscal year of the Partnership, shall not exceed twenty-five (25%) per cent of the pre-tax cash flow of the Partnership, as calculated by the accountants for the Partnership, from time to time. The pre-tax cash flow shall be calculated by determining the net operating income for the fiscal year, and deducting the aggregate of any drawings on account of Partnership Income that have been approved by the Partnership for that fiscal year and the total debt service of the Partnership. If the full amount otherwise payable to an expelled or withdrawing Partner cannot be paid as a result of this restriction, the amount unpaid shall accrue into the following fiscal year of the Partnership, and so on in like fashion from fiscal year to fiscal year until it can be paid. Interest shall only accrue on any such amounts if the deferred payments arise out of an obligation of the Partnership pursuant to Section 8.03 or Section 8.04 hereof. ARTICLE 9.0 NOTICES 9.01 GIVING OF NOTICES Any notice or written communication required or permitted to be given shall be in writing and: (a) Delivered personally to the person to whom it is directed; or (b) Sent by registered mail, postage prepaid, return receipt requested; or (c) Sent by telecopier or similar method of communication, to any

telecopier number provided by that Partner or Principal with confirmation of receipt requested;

and, in the case of Sections 9.01(b) and 9.01(c), it will be deemed delivered upon receipt by the initiator of the notice or written communication of the confirmation of delivery. 9.02 ADDRESS OF NOTICES All notices may be addressed to the party to whom it is directed at the following addresses: or to such other address in Canada or elsewhere as the parties may in writing advise. Any notice, document or communication shall be deemed to be given and received when so delivered.



ARTICLE 10.00 ARBITRATION 10.01 ARBITRATION All disputes arising out of this Agreement and its interpretation, performance or breach which cannot be resolved between the Partners, on the request of one (1) or more of the Partners, shall be submitted to arbitration pursuant to The Arbitration Act, 1992 (Saskatchewan). 10.02 NUMBER OF ARBITRATORS There shall be three (3) arbitrators. The Partner requiring arbitration and the other Partner(s) (collectively) shall each be entitled to appoint one (1) arbitrator, with the two (2) arbitrators so appointed choosing the third. 10.03 PROCEDURE FOR ARBITRATION The party demanding arbitration shall inform, in writing, the other party of the name of its arbitrator and the issue to be arbitrated and the party receiving the demand shall name its arbitrator, within seven (7) days thereafter, and so advise the other in writing. The two (2) arbitrators so designated shall choose a third arbitrator as chairperson within fifteen (15) days of the last of the respective appointments. If the party receiving the demand for arbitration fails to name an arbitrator within the time specified, then an arbitrator may be named by a Judge of the Court of Queen's Bench for Saskatchewan as provided in The Arbitration Act, 1992 and if the two (2) arbitrators named shall fail to name a third arbitrator, then similarly, a judge of the Court of Queen's Bench for Saskatchewan may name the third arbitrator. 10.04 AWARD OF ARBITRATORS An award made by two (2) of the three (3) arbitrators shall be final and binding on all parties. The arbitrators shall determine their own rules and procedures and the rules of evidence that they shall follow. Each of the parties to the arbitration shall bear the costs of their professional advisors in relation to the arbitration, and the costs of the arbitration proceeding and the fees and expenses of the arbitrators, shall be borne equally by the parties to the arbitration, unless otherwise determined by the arbitration board in its award. ARTICLE 11.00 TERMINATION 11.01 DISSOLUTION OF PARTNERSHIP The Partnership shall only be dissolved upon the approval of dissolution by a unanimous resolution of the Partners.



11.02 NO DEEMED DISSOLUTION The Partnership shall not be dissolved, or terminated, by the resignation, bankruptcy, insolvency, dissolution, liquidation, winding-up, or receivership of, any of the Partners, nor the admission, expulsion or withdrawal from the Partnership of any Partners. Notwithstanding any rule of law or equity to the contrary, the Partnership shall not be dissolved, nor this Agreement terminated, except in the manner provided. ARTICLE 12.00 GENERAL 12.01 FISCAL YEAR END The first fiscal year of the Partnership shall end on such date as may be determined by resolution of the Partners, and in like fashion in each year thereafter unless the Partners shall otherwise agree. 12.02 APPOINTMENT OF AUDITOR The appointment of an auditor for the Partnership is hereby waived until such time as a majority of the Partners, by written notice to the other Partners, require an audited financial statement to be prepared. In such event, the appointment of an auditor will be agreed upon by the Partners and if they cannot agree within ten (10) days of such written notice, the auditors appointed shall be __________, ________, Saskatchewan. 12.03 FURTHER AND OTHER DOCUMENTS Each party agrees to execute and deliver such further and other documents and perform and cause to be performed such further and other acts and things as may be necessary or desirable in order to give full effect to this Agreement and every part thereof. 12.04 ENURMENT Subject to the restrictions on assignment and transfer in this Agreement, the Agreement shall enure to the benefit and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 12.05 APPLICABLE LAW This Agreement shall be governed by and construed in accordance with the laws of the Province of Saskatchewan. 12.06 INSTRUCTION OF AGREEMENT The division of this Agreement into sections and the heading of each section is for convenience of reference and shall not affect the construction or interpretation of this Agreement.



12.07 SEVERABILITY Each of the covenants, provisions, articles, sections, subsections, and other subdivisions hereof is severable from every other covenant, provision, article, section, subsection or subdivision hereof, and the invalidity or unenforceability of any one (1) or more covenants, provisions, articles, sections, subsections or subdivisions of this Agreement shall not affect the validity or enforceability of the remaining covenants, provisions, articles, sections, subsections and subdivisions. 12.08 VARIATION OR AMENDMENT OF AGREEMENT Except as provided herein, no modification, variation or amendment of this Agreement and no waiver of the performance of any of the covenants or obligations of any of the parties shall be effective unless the same shall be effected in writing and executed by all Partners. 12.09 ENTIRE AGREEMENT This Agreement constitutes the entire agreement of the parties with regard to the matters dealt with herein and no understanding or agreement, verbal or otherwise, exists among them with respect to the matters dealt with except as expressly set forth. 12.10 TIME Time shall be of the essence of this Agreement.

12.11 BINDING ON SHAREHOLDERS AND PRINCIPALS Each of the shareholders of each of the Partners has executed this Agreement at the request of the Partners evidencing their intent to be bound by the terms hereof. IN WITNESS WHEREOF _____________ has hereunto executed this Agreement.




CO-COVENANTORS

_____________, as Principal of ______________ has executed below evidencing his covenant to be bound by the terms of the foregoing Partnership Agreement as Principal to the extent that the same is applicable to him as Principal.

IN WITNESS WHEREOF I, _____________ have hereunto subscribed my name and affixed my seal. SIGNED, SEALED AND DELIVERED ) BY THE ABOVE NAMED ) ) _____________________ ______________________________, ) in the presence of )

) ______________________________ ) Witness


SCHEDULE "A" (Article 7.05) (a) The remaining Partners (the "Continuing Partners") shall assume

liability for all debts and liabilities of the Partnership from and after the Withdrawal Date or the Involuntary Withdrawal Date except any debt or liability in respect of any claim existing at the Withdrawal Date or the Involuntary Withdrawal Date and arising from any wrongful act or omission of the Partner who is leaving (the "Outgoing Partner") to the extent that such claim is not covered by insurance and shall keep the Outgoing Partner indemnified against such debts and liabilities except as aforesaid and all actions, proceedings, costs, claims and demands in respect thereof;

(b) The Outgoing Partner shall join with the Continuing Partners and with

any person or persons who may enter into the Partnership with the Continuing Partners in making any election under the Income Tax Act of Canada in order to ensure the distribution of the Partnership property without (or to minimize) incidence of tax;

(c) The Outgoing Partner shall deliver to the Partnership all books of

account, records, letters and other documents in the possession of the Outgoing Partner relating to the Partnership business but during the period of three (3) months following the Withdrawal Date or the Involuntary Withdrawal Date, the Outgoing Partner or its duly authorized agent shall be permitted to inspect, by appointment, the books of account, records, letters and other documents of the Partnership business insofar as they relate to any period preceding that date;

(d) The Outgoing Partner shall make full disclosure to the Continuing

Partners of all contracts, obligations, and commitments which that Partners has entered into for or on behalf of the Partnership and shall sign, execute, and do such other deeds, acts, and things as the Continuing Partners may reasonably request for the purpose of enabling the Continuing Partners to recover and collect the book debts and other assets of the Partnership or for the purpose of conveying, assigning, or transferring to the Continuing Partners or any of them any Partnership property which immediately prior to the Withdrawal Date or the Involuntary Withdrawal Date was vested in the Outgoing Partner as one of the Partners or in trust for the Partnership.



DECLARATION OF LIMITED PARTNERSHIP PURSUANT TO SECTION 16 OF

THE BUSINESS NAMES REGISTRATION ACT OF SASKATCHEWAN 1. The business name under which the Limited Partnership is to be conducted is “______________ Program”. 2. The general business intended to be transacted by the Limited Partnership is the exploration, development and operation of certain oil and gas properties of _________ Resources Limited and to save, store, treat, transport and market natural gas, oil and related hydrocarbons and products derived therefrom. 3. The names and places of residence of the General and Limited Partners are as indicated in the schedule annexed hereto and marked “Schedule A”. 4. The Limited Partnership shall subsist until December 31, 2025, or until the earlier happening of any of the following events:

(a) Thirty (30) days following the bankruptcy, dissolution or winding-up of the General Partner unless replaced as permitted under Article XII of the Limited Partnership Agreement annexed hereto and marked “Schedule B”;

(b) Upon written request by the General Partner then managing the business of the Partnership and the consent of Limited Partners by Extraordinary Resolution;

(c) If, at any time when the General Partner owns more than seventy-five (75%) percent of the outstanding Units, the General Partner is in default of any obligation or representation contained in the Limited Partnership Agreement and such default has continued for at least thirty (30) days following receipt of written notice to remedy such default from any Limited Partner, then on an Extraordinary Resolution of the Limited Partners at a meeting called for that purpose.

5. The Limited Partners have contributed or agreed to contribute the amounts indicated opposite their respective names as provided in Schedule A, attached hereto. Each Limited Partner shall contribute, in cash, Fifty Thousand ($50,000) Dollars for each Unit of Partnership interest acquired by him. 6. The Limited Partners are not required to make any other or additional contributions.



7. The Limited Partners’ contributions shall be fully expended or committed for expenditure by December 31, 2006, and to the extent not so expended or committed for expenditure shall be returned to the Limited Partners, who contributed the same, on a pro rata basis; provided however, in no event shall more than Twenty-five Thousand ($25,000) Dollars per Unit be returned pursuant to such provision. Otherwise Limited Partners are entitled to a return of their contribution upon the dissolution of the Limited Partnership pursuant to Section 16.3 of the Limited Partnership Agreement. In addition, distributions pursuant to Article VII of the Limited Partnership Agreement shall be as a return of capital until such time as Ninety-nine and nine-tenth (99.9%) percent of such Limited Partners’ share of the Limited Partners’ Contributions have been repaid or returned. 8. All profits or other compensation shall be allocated among the Limited Partners pro rata to the number of Units owned by each Limited Partner in accordance with the provisions of Section 7.2 of the Limited Partnership Agreement. 9. A Limited Partner may, without charge, assign his Unit(s) in the Limited Partnership subject to the following terms and conditions:

(a) No assignment of any Units will be recognized nor any amended Certificate filed, nor entered in the register of the Limited Partnership, unless such assignment is of a whole Unit.

(b) The assignee shall deliver to the General Partner a transfer in form satisfactory to the General Partner, duly executed by the assignor and the assignee together with a copy of the Limited Partnership Agreement, duly executed by or on behalf of the assignee.

(c) The Certificate evidencing such Units shall be surrendered to the General Partner in exchange for a new certificate therefor in the name of the assignee unless the General Partner is satisfied such Certificate has been lost or destroyed.

(d) A Limited Partner shall not, without the consent of the General Partner, transfer his Units to a party who is not a “Qualified Party” as defined in the Limited Partnership Agreement. The General Partner may refuse consent to a transfer to a person who is not a Qualified Party, if in its judgment the transfer would reduce the Canadian Ownership Rate to a level such that the Partnership would not qualify for the maximum “PIP Payments”, as defined in the Limited Partnership Agreement, available.

(e) If such assignment is made prior to payment in full of the contribution agreed to be made as provided in Section 5.3 of the Limited Partnership Agreement, the transferee must make provision satisfactory to the General Partner for the payment of the balance of such contribution.

(f) No assignment of a Unit shall relieve the assignor of any liability or obligation arising prior to such assignment.



10. The General Partner may admit additional Limited Partners to the Limited Partnership; however, the maximum number of Units in the Limited Partnership shall be forty (40). 11. A Limited Partner shall not be entitled to any priority over other Limited Partners with respect either to any return of his contribution or any compensation by way of income. 12. The General Partner is a corporation which may be replaced in the following circumstances:

(a) Resignation of the General Partner following approval by an Extraordinary Resolution;

(b) Deemed resignation thirty (30) days after the bankruptcy or liquidation of the General Partner;

(c) Default of any obligation contained in the Limited Partnership Agreement if the default continues for at least thirty (30) days following receipt of written notice to remedy such default from any Limited Partner;

provided that in case aforesaid replacement of the General Partner shall be effective upon the appointment of a substitute General Partner. In these circumstances the substitute General Partner is entitled and obliged to continue the business of the Partnership. 13. A Limited Partner shall not be entitled to demand or receive property other than money in return for his contribution. The Partnership will, on the last day of June and December in each year, pay to each Partner, in accordance with Section 7.2 of Limited Partnership Agreement, such portion of the cash and marketable securities of the Partnership (other than “Limited Partners’ Contributions” as defined in the Limited Partnership Agreement) which is surplus to:

(a) The unsecured liabilities of the Partnership at the date of distribution; and

(b) Amounts which the General Partner, in its discretion, considers should reasonably be retained for use in Partnership operations.

14. Distributions made in accordance with the foregoing shall be considered to be a withdrawal or return of the capital until such time as ninety-nine and nine-tenth (99.9%) percent of such Limited Partners’ share of the Limited Partners Contributions have been repaid or returned. Thereafter, such distributions shall be of income or assets of the Limited Partnership.



15. The Limited Partners have given special authority to the General Partner to execute this Declaration and amendments hereto on behalf of the Limited Partners. IN WITNESS WHEREOF ________ Resources Limited has executed this Declaration in its capacity as General Partner and as attorney for the Limited Partners as of the 31st day of December, A.D. 2005. GENERAL PARTNER LIMITED PARTNERS, by their duly ________ Resources Limited authorized attorney in that regard, _____________ Resources Limited Per : _________________ Per: _____________________ Per: _________________ Per: _____________________



LIMITED PARTNERSHIP AGREEMENT THIS AGREEMENT MADE THIS ________ DAY OF APRIL, A.D. 2005. BETWEEN:

CANORE LIMITED, a body corporate, incorporated pursuant to the laws of the Dominion of Canada,

Hereinafter called “the GENERAL PARTNER”

- and -

Each and every person who subscribes for units and is accepted as a Limited Partner in the Partnership formed pursuant to this Agreement,

Hereinafter called “the LIMITED PARTNERS”

I. FORMATION OF LIMITED PARTNERSHIP 1.1 The General Partner and the Limited Partners hereby form and enter into a Limited Partnership (hereinafter called “the Partnership”) in accordance with The Partnership Act, R.S.S. 1978, c. P-3 and the provisions of this Agreement. II. NAME 2.1 The name of the Partnership is “Canore’86-Limited Partnership” or such other name or names as the General Partner may from time to time select as necessary or advisable. The General Partner shall register such name or names pursuant to The Business Names Registration Act, R.S.S. 1978 c. B-11, as amended. III. DEFINITIONS 3.1 The following definitions apply to this Agreement:

“Affiliate” shall have the meaning subscribed to it in The Securities Act of the Province of Saskatchewan, and any amendments thereto.



“Agreed Subscription” means One Thousand ($1,000) Dollars per unit which is the amount payable to the Partnership as the subscription price for a Unit. “Auditor” means Coopers & Lybrand or such other partnership whose partners are members, in good standing of the Canadian Institute of Chartered Accountants and who is appointed by the General Partner as auditor for the Partnership with the approval of an ordinary resolution. “Capital” at any time means the aggregate amounts paid for the units. “Certificate” means a certificate of ownership in the form attached as “Schedule A” indicating that the registered holder thereof is the owner of the number of units therein stated. “Declaration” means the declaration filed with the Registrar pursuant to The Business Names Registration Act as may from time to time be amended. “Extraordinary Resolution” means a resolution passed by Seventy-five (75%) percent or more of the votes cast at a meeting of the Partners called for the purpose of considering such resolution, each Partner having One (1) vote for each unit held or, alternatively, a resolution signed by Partners holding Seventy-five (75%) percent or more of the outstanding units entitled to vote on such resolution at a meeting. “General Partner” means Canore Limited or any other party who may become the General Partner of the Partnership in place of or in substitution for Canore Limited from time to time in each case until such General Partner ceases to be the General Partner of the Partnership under the terms of this Agreement. “Income Tax Act” means the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1 and amendments thereto. “Joint Venture” means an agreement whereby an owner of a leasehold or working interest agrees to assign an interest in certain specific acreage to the assignee, retaining some interest such as a carried interest, working interest, operatorship, or other type of interest, subject to and in consideration of the assignment by the assignee of an interest to the assignor in certain other specific acreage, money or other property, the engagement in exploration or development or other performance as agreed to.“Net Income” or “Net Loss” means the net income or loss of the Partnership for a fiscal year determined in accordance with generally accepted accounting principles and shall include provisions for such reserves as in the opinion of the General Partner are required for the Partnership business. “Ordinary Resolution” means a resolution passed by more than Fifty (50%) percent of the votes cast at a meeting of Partners, each Partner having One (1) vote for each unit held, or alternatively, a resolution signed by Partners holding more than Fifty (50%) percent of the outstanding units entitled to vote at a meeting.



“Partner” means any Limited Partner or the General Partner. “Partnership Business” has the meaning assigned by paragraph 4.1. “Person” means an individual, sole proprietor, partnership, unincorporated association, syndicate, or organization, trust body, corporate and a natural person in his capacity as trustee, executor, administrator or other legal representative. “Qualified Person” means a person that is competent to enter into this Agreement and is a resident of Canada within the meaning of the Income Tax Act. “Register” means the register of the Limited Partner as maintained by the General Partner. “Revenue” means revenue as defined by generally accepted accounting principles but shall be net of ongoing administrative expenses. “Substituted Limited Partner” means an assignee or transferee of a unit entitled to become a Limited Partner pursuant to this Agreement. “Taxable Income” or “Tax Loss” means the amount of income or loss of the Partnership for a fiscal year determined by the General Partner pursuant to the provisions of the Income Tax Act. “Unit” means the interest of a Limited Partner in the Partnership purchased for each One Thousand ($1,000) Dollars of agreed subscription.

IV. BUSINESS OF THE LIMITED PARTNERSHIP 4.1 Purpose The Partnership is formed for the following purposes:

(a) To conduct geological research, acquire mineral dispositions and or claims, explore claims, and develop, produce or sell ores located in the Province of Saskatchewan;

(b) To purchase or sell claims or interests therein; and (c) To construct and operate facilities for the production, development,

collection, storage, delivery, marketing and sale of minerals;

all of which purposes may be conducted by itself or in association with others by way of joint venture or otherwise or as a Limited Partner in other partnerships. 4. 2 Powers The Partnership shall have the power to do all things necessary in order to carry out the purposes set out in clause 4.1.



V. CAPITAL CONTRIBUTIONS 5.1 Capital Contributions of Limited Partners Each Limited Partner shall contribute in cash by way of capital contribution to the capital of the Partnership a minimum of Twenty-five Thousand ($25,000) Dollars for a minimum total of 25 units subscribed for, payable Fifty (50%) percent upon subscription and Fifty (50%) percent by valid cheque post-dated to August 1, 1986 and delivered with his subscription and shall not be subject to additional assessments for capital. The minimum subscription shall be Twenty-five (25) units. The General Partner shall have the right to control the number of units subscribed for by any Limited Partner. Subject to the provisions of this Agreement, the General Partner shall be treated as a Limited Partner with the respect to any units held by it. 5.2 Return of Capital Contribution If any portion of the Partnership capital contribution of the Limited Partners is not expended or committed to be expended by the 31st day of December, 2006, funds not so expended or committed, except for funds which the General Partner considers in its discretion to be necessary for the operations of the Partnership, shall be returned to each Limited Partner as a return of capital pro rata in proportion to the number of units held by each. 5.3 Non-Payment of Subscription If any Limited Partner shall fail to make any payment for its subscription set out in clause 5.1 for any reason, the General Partner may at any time notify the defaulting Limited Partner that either:

(a) The units which have not been paid for have been cancelled; or

(b) The units which have not been paid for have been transferred to a Substituted Limited Partner, which may be the General Partner, in consideration for the payment by the Substituted Limited Partner to the Partnership of the amount in default. No refund will be payable to the defaulting Limited Partner and it is not necessary for the defaulting Limited Partner to execute any form of transfer in respect of the units transferred or cancelled. All Limited Partners hereby appoint the General Partner as their power of attorney to execute any form or transfer as is necessary to effect the transfer of a unit of a defaulting partner as set out herein.

VI. FISCAL YEAR AND TERM OF THE PARTNERSHIP 6.1 Fiscal Year The fiscal year of the Partnership shall terminate on the 31st day of December, in each year during the term of the Partnership.



6.2 Term The Partnership shall continue until the 31st day of December, _____, unless sooner dissolved according to the terms of this Agreement. VII. REPRESENTATIONS AND WARRANTIES OF THE GENERAL AND LIMITED PARTNERS 7.1 General Partner The General Partner represents and warrants to and covenants and agrees with, the Limited Partners that:

(a) It is a corporation incorporated and in good standing under the laws of the Dominion of Canada;

(b) It is registered and will continue to be registered to do business and has all requisite licences and permits to carry on the business of the Partnership in all jurisdictions in which the Partnership activities as proposed to be carried on render such registration necessary or advisable;

(c) It has the capacity and corporate authority to act as General Partner in the performance of its obligations hereunder as General Partner and such does not and will not conflict with or constitute a breach of its articles, bylaws or any agreement by which it is bound or to which it is a party;

(d) It shall act in the best interests of the Partnership from time to time in the carrying on of the business and affairs of the Partnership; and

(e) It will do all things and take all actions in its power as are necessary to ensure the limited liability of the Limited Partners.

7.2 Limited Partners Each Limited Partner represents that he is a Qualified Person within the meaning of this Agreement. 7.3 Survival of Representations and Warranties The representations and all warranties and covenants in Article VII hereof shall survive the execution of this Agreement and each party shall ensure the continuing accuracy of each representation and warranty made by it for the term of the Partnership.



VIII. APPOINTMENT OF SUBSTITUTE GENERAL PARTNER 8.1 Removal of General Partner The General Partner may be removed as the General Partner of the Partnership by an ordinary resolution in the event of the bankruptcy of the General Partner or dissolution, winding up or the appointment of a trustee or receiver of its assets; provided that the said resolution is passed within One Hundred and Twenty (120) days after the occurrence of the bankruptcy, dissolution, winding up or appointment. 8.2 Replacement of the General Partner The removal of the General Partner, in accordance with clause 8.1 hereof, will be effective and the General Partner shall cease to be the General Partner of the Partnership only upon the Limited Partners, by an ordinary resolution, having appointed a new General Partner to assume the responsibilities and rights of the General Partner as manager of the Partnership and upon the new General Partner having executed this Agreement and having assumed the powers, duties and obligations of the General Partner under this Agreement. 8.3 Transfer of Management to New General Partner Upon any change to a new General Partner, the General Partner shall do all things and shall take all action to transfer immediately and effectively the management and operation, assets, books, records and accounts of the Partnership to the new General Partner including the execution of all deeds, certificates, declarations and other documents whatsoever which may be necessary to effect such change and to convey all the assets of the Partnership to the new General Partner. 8.4 Release of General Partner Upon removal of the General Partner as set out in clauses 8.1 and 8.2 above, the Partnership shall release and hold harmless, and the Limited Partners shall release, the General Partner from all actions, claims, costs, demands, losses, damages and expenses with respect to events which occur in relation to the Partnership after the effective date of such removal and which do not relate to the actions of the General Partner prior to such removal. IX. POWERS, AUTHORITY AND DUTIES OF THE GENERAL PARTNER 9.1 Management by General Partner The General Partner is the manager of the Partnership and no person dealing with the Partnership shall be required to question the authority of the General Partner to take any action or to make any decision in the name of and on behalf of the Partnership.



9.2 Powers of the General Partner In addition to the power and authority of the General Partner to act on behalf of the Partnership as set out elsewhere in this Agreement, the General Partner shall have the power and authority:

(a) To manage, control and operate the business of the Partnership and to do or cause to be done any and all acts necessary, appropriate, convenient or incidental to the business of the Partnership;

(b) To acquire interests in leases, permits, reservations, claim blocks, rights, working interests, royalty interests, contractual rights or options, joint ventures and any such interests as the General Partner may select from time to time in connection with the exploration for and development of mineral ore bodies by the Partnership. The interests so acquired may consist of all, or any fraction, of the total working interest and royalties or carried interests or contractual rights therein, and may be subject to overriding contractual or leasehold of a similar nature as the General Partner may deem reasonable;

(c) To hold Partnership assets and property in the name of the Partnership or the General Partner or a nominee of the General Partner;

(d) To conduct geophysical, geological and other exploratory or developmental work and to make decisions with respect to the drilling, abandoning or developing of mines;

(e) To execute on behalf of the Partnership, any and all documents or instruments of any kind which the General Partner may deem appropriate in carrying out the purpose and business of the Partnership, including without limitation, joint venture agreements, limited partnership agreements for the purpose of becoming a limited partner, operatorship agreements, sales contracts, carried interest agreements and any amendments thereto;

(f) To accept contributions of cash, interests in mineral claim blocks or other consideration in connection with the disposition of any interest in a mineral claim block, partnership, joint venture or other right, be it in contract or otherwise;

(g) To pay or not to pay any charge or assessment;

(h) To sell, surrender, abandon, encumber or otherwise dispose of any mineral ore body or interest therein or any other assets of the Partnership in the ordinary course of the Partnership business including the power to sell any mineral ore body or interest therein for the purpose of financing additional operations, provided however, that no sale of all or substantially all of the assets of the Partnership will be undertaken without the previous authorization of an extraordinary resolution;



(i) To operate, produce, bind and enter into operating agreements with others with respect to the properties acquired by the Partnership, naming a third party as operator or manager, if the General Partner deems that to be advisable, and containing such terms, provisions and conditions as the General Partner shall approve;

(j) To purchase or lease equipment in connection with the business of the Partnership;

(k) To open bank accounts for the Partnership and to designate from time to time authorized signatories to such accounts, and to execute loan and credit agreements on behalf of the Partnership;

(1) To borrow money for the purposes of financing additional operations from time to time, without limit as to amount, to draw, make, execute and issue promissory notes and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of the sums so borrowed and to mortgage, pledge, assign pursuant to the Bank Act, S.C. 1991, c.46, or otherwise mortgage, pledge or assign all or any part of the property of the Partnership including, without limitation, the production and proceeds of production or assign any money owing or accruing to the Partnership and to engage in any other means of financing in accordance with the general practice of the mining industry or open to the Partnership;

(m) To enter into financing, sales, agency and other agreements and arrangements in connection with the financing of the Partnership and the distribution of units;

(n) To submit to binding arbitration any matters pertaining to the assets, undertaking and business of the Partnership;

(o) To enter into other partnerships and to incorporate and participate in companies necessary or advisable for the purpose of the Partnership;

(p) To bring or defend on behalf of the Partnership any actions or proceedings in connection with the Partnership business;

(q) To file any returns required by any government or like authority;

(r) To make any election that may be made under the Income Tax Act. 9.3 Duties In addition to the duties of the General Partner set out elsewhere in this Agreement, the General Partner will manage, control and operate the business of the Partnership and do or cause to be done in a prudent and reasonable manner any and all acts necessary, appropriate or incidental to the business of the Partnership and will do so honestly, in good faith and in the best interests of the



Limited Partners and in connection therewith, shall exercise the degree of care, diligence and skill that a reasonably prudent person experienced in the mining industry would exercise in similar circumstances. In connection therewith, the General Partner:

(a) Shall maintain, at the expense of the Partnership, adequate records and accounts of all operations and expenditures and furnish the Limited Partner with the periodic reports and information provided for below, together with all necessary tax reporting information;

(b) Shall purchase, at the expense of the Partnership, such liability and other insurance as the General Partner considers ordinary and appropriate to protect the Partnership’s properties and business;

(c) Shall determine to what extent the Partnership mineral claim blocks are to be explored, drilled, sold, developed, disposed of or abandoned and decide upon the amount of cash needed for the operation of the Partnership;

(d) Shall cause the Partnership, in calculating its profit or loss for any fiscal year, to deduct the maximum capital cost allowance available to it for that year;

(e) Shall invest funds not immediately required for the operations of the Partnership in securities issued or guaranteed by the Government of Canada or any Canadian province, or certificates of deposit or interest bearing accounts in Canadian financial institutions, with interest accruing to the Partnership until required for the purposes of the Partnership;

(f) Shall cause the Partnership to employ any person required for the business of the Partnership; the duties of the General Partner may be carried out by the General Partner or by independent contractors retained for specific purposes at the discretion of the General Partner;

(g) Unless otherwise agreed, shall engage chartered accountants to conduct an annual audit of financial statements of the Partnership prepared in accordance with generally accepted accounting principles, standards and practices applied on a basis consistent with the immediately preceding fiscal year of the Partnership. Such statements will include a representation by the General Partner that all revenue and costs of the Partnership have been calculated and allocated among the Partners in accordance with the provisions of this Agreement. A copy of the financial statements and the report thereon of such accountants will be mailed by the General Partner to each Limited Partner within One Hundred and Twenty (120) days of the year end;



(h) Shall furnish to each Limited Partner all necessary income tax reporting information for each calendar year on or before the 31st day of March of the following year;

(i) Shall maintain and preserve during the term of the Partnership and for Six (6) years thereafter, all accounts, books and other relevant Partnership documents;

(j) Shall keep the funds of the Partnership separate from the funds of the General Partner or any other entity; and

(k) Shall not cause the Partnership to guarantee the obligations, liabilities of, or make any loans to, the General Partner or to any entity with which the General Partner does not deal at arm’s length.

X. CONFLICTS OF INTEREST 10.1 Disposal of Excess Interest If the General Partner determines that the Partnership should participate in any exploration and/or development of any mineral claim block to an extent of less than One Hundred (100%) percent of the available interest, then the General Partner may purchase such reduced interest or dispose of the balance of the One Hundred (100%) percent interest by sale of such interest to other joint ventures, partnerships or entities managed by the General Partner or otherwise. In such event, the affiliated partnership or entity that purchases such interest will pay for the acquisition, drilling, exploration and development of any such claim block on a basis not less than the cost basis of the Partnership’ s share. 10.2 Accounting to Partnership The General Partner is not required to account to the Partnership or any Limited Partner for any benefit or profit derived from any similar or competing activity or from any transactions relating thereto of the General Partner by reason of any conflict of interest or the fiduciary relationship created by virtue of the position of the General Partner hereunder unless such similar or competing activity or transaction is contrary to the express terms of this Agreement or is in contravention of the General Partner’s fiduciary obligations to the Partnership. 10.3 Transfer of Property to Partnership In relation to any interest in a mineral claim block acquired by the Partnership from the General Partner or any other party (the transferor), the transferor will convey a good and marketable title to such interest, provided that the transferor will not be required to convey any better title in and to the interest than it is entitled to under the title instruments and documents by which it obtained its title to the interest, and the transferor will represent and warrant to the Partnership that at the time of transfer:



(a) The transferor has not sold, assigned or otherwise disposed of all or any part of its claim or title to such interest and there are no liens, charges, claims, encumbrances or actions in existence to its knowledge, contemplated or threatened against or with respect to the interest of the transferor which have arisen upon or after the acquisition thereof by the transferor, and the transferor is not aware of any liens, charges, claims, encumbrances or actions which arose prior to such acquisition and remain outstanding except, in either case, such as may have been disclosed to and found acceptable by the Partnership;

(b) The transferor has performed and observed all its duties, obligations and covenants of any nature or kind to be satisfied, performed and observed by it under the terms of the title instruments and documents and that the transferor is not in default under or in breach of any of the terms, conditions and covenants thereof and no event has occurred which, with lapse of time, would become such a breach;

(c) The transferor has full power and absolute authority to sell, transfer and assign its interest in said mineral claim block which it is purporting to sell, transfer and assign and such interest in the mineral claim block is not subject to any pre-emptive or preferential right of purchase by any third party;

(d) As at the date of transfer, to the best of the transferor’s knowledge, information and belief, all exploration of any mineral claim blocks has been completed in accordance with all applicable government rules and regulations of any government authority having jurisdiction thereover;

(e) The transferor has not incurred or approved any expenditures with respect to the interest, contingent or otherwise, for which the Partnership will have any obligation or liability excepting those which have been disclosed to, and found acceptable by the Partnership prior to the date of transfer;

(f) All applicable taxes and assessments payable for all prior years have been properly paid; and

(g) All laws, regulations and orders of all government authorities having jurisdiction over the interest have been complied with by the transferor.

10.4 Resolution of Conflicts In resolving conflicts between the Partnership and other limited partnerships or ventures in which the General Partner has an interest, decisions will be made on a basis consistent with the objectives of and the funds available to the limited partnerships or ventures and the time limitations on the investment of those funds, all consistent with the General Partner’s duty to deal fairly and in good faith with each limited partnership and venture. In the event that the interests of the General



Partner are in conflict with those of the Partnership, the General Partner will make decisions acting in good faith, having regard to the best interest of the Partnership and in a manner that would not contravene its fiduciary obligations to the Partnership. 10.5 Benefit to General Partner The Limited Partners acknowledge that exploration and development activities on properties owned by the Partnership may lead to the incidental result of providing additional information with respect to, or increasing the value of, properties in which the General Partner or other parties not at arm’s length with the General Partner have an interest and agree that the General Partner and parties not at arm’s length with the General Partner may take advantage of such knowledge without accounting to the Partnership therefor, provided that the General Partner is not in breach of any duty set out in this Agreement. XI. LIMITED PARTNERS 11.1 Limited Liability No Limited Partner shall be liable for the obligations of the Partnership or the losses thereof except in respect of the amount contributed to the capital of the Partnership and his interest in the Partnership assets. 11.2 Indemnity from General Partner The General Partner shall indemnify and hold harmless the Limited Partners (including former Limited Partners) from and against all costs, damages, liabilities or losses incurred by a Limited Partner that result from such Limited Partners not having limited liability, except where the lack or loss of limited liability has been caused by some act, or omission to act, of such Limited Partner. 11.3 Prohibition from Participation in Management No Limited Partner, as such, shall take part in the management or control of the business, transact any business for the Partnership or have the power to sign for or to bind the Partnership. 11.4 Access to Records The General Partner, upon receipt of a written request therefor, shall furnish a Limited Partner with a list of names, addresses and number of units held by all Limited Partners at no cost to the Limited Partner other than the reproduction and mailing costs. A Limited Partner shall have the right to examine the books and records of the Partnership at all reasonable times, including the right to have such examination conducted at the Limited Partner’s sole expense by any reasonable number of representatives. Notwithstanding the foregoing, the General Partner may in its discretion keep assay reports, logs, drill reports, other exploration data and production information confidential for as long as the value of the information to the Partnership as a whole depends upon its confidentiality.



11.5 No Refund on Capital Except as otherwise set forth in this Agreement, no Limited Partner shall be entitled to the return of any portion of his partnership capital contribution or to demand such return. 11.6 No Interest No Limited Partner shall be entitled to interest on any portion of his partnership capital contribution. XII. LIMITED LIABILITY; INDEMNIFICATION OF GENERAL PARTNER 12.1 Nature of Limited Partners’ Liabilities for Claims Against Partnership In furtherance of the intent of the parties that no Limited Partner shall be liable to creditors of the Partnership, the parties agree that:

(a) The General Partner shall prosecute, defend, settle or compromise all legal actions, at the expense of the Partnership as may be necessary to enforce or protect Partnership interests; and

(b) The General Partner will satisfy any claim against or liability of the Partnership and any judgment, decree, decision or settlement, firstly out of any insurance proceeds available therefor, secondly out of Partnership assets and income, and finally out of the assets and income of the General Partner.

12.2 Indemnity of General Partner

(a) In any threatened, pending or completed action, suit or proceeding to which the General Partner was or is a party or is threatened to be made a party by reason of the fact that it is or was the General Partner (other than an action by or in right of the Partnership), the Partnership shall indemnify the General Partner against expenses, including legal fees, judgments and amounts paid in settlement actually and reasonably incurred by it in connection with the defence or settlement of such action, suit or proceeding if it acted in good faith and in a manner it reasonably believed to be in the interests of the Partnership, except that no indemnification shall be made in respect of any claim, issue or matter as to which the General Partner shall have been adjudged to be liable for negligence. The termination of any action, suit or proceeding by judgment, order or settlement shall not, of itself, create a presumption that the General Partner did not act in good faith and in a manner which it reasonably believed to be in the best interests of the Partnership.

(b) In any threatened, pending or completed action or suit by or in the right

of the Partnership, to which the General Partner was or is a party or is threatened to be made a party, the Partnership shall indemnify the General Partner against expenses, including legal fees, actually and reasonably incurred by it in connection with the defence or settlement of such action or suit if it acted in good faith and in a



manner it reasonably believed to be in the best interests of the Partnership, except that no indemnification shall be made in respect of any claim, issue or matter as to which the General Partner shall have been adjudged to be liable for negligence, misconduct or breach of fiduciary obligation in the performance of its duty to the Partnership unless and only to the extent that the court in which such action or suit was brought shall determine upon application, that, despite the adjudication of liability but in view of all circumstances of the case, the General Partner is fairly and reasonably entitled to be indemnified for such expenses as such court deems proper.

(c) To the extent that the General Partner has been successful on the merits or otherwise of any action, suit or proceeding referred to above, or in defence of any claim, issue or matter herein, the Partnership shall indemnify it against all expenses, including legal fees, actually and reasonably incurred by it in connection therewith. 12.3 Indemnity by General Partner The General Partner will indemnify the Partnership for all damages incurred by the Partnership as a result of any act of gross negligence or wilful misconduct of the General Partner including that part of the legal expenses incurred by the Partnership to defend an action based in whole or in part upon an allegation that the General Partner has been guilty of gross negligence or wilful misconduct, if the defence relating to such allegation is substantially unsuccessful. If any such action alleging gross negligence or wilful misconduct is settled by the General Partner, such action will be deemed, for the purposes of this clause 12.3, to have been defended unsuccessfully unless the settlement is approved by an extraordinary resolution. XIII. ALLOCATIONS AND DISTRIBUTIONS 13.1 Reimbursement of General Partner The General Partner is entitled to reimbursement by the Partnership for:

(a) All costs and expenses that are properly incurred by the General Partner on behalf of the Partnership; and

(b) Any advance by the General Partner to the Partnership together with interest thereon at the rate charged to the General Partner from time to time by the Canadian Financial Institution used by the General Partner in Saskatoon, Saskatchewan.

13.2 Repayment of Advances Repayment of principal and interest on bank loans or on advances by the General Partner will be allocated to the General Partner and the Limited Partners in the same proportion that the costs paid with the proceeds of such bank loans or advances were allocated.



13.3 Allocation of Costs Subject to clause 13.1, all costs of the Partnership will be allocated to the Limited Partners, other than those actually paid for by the General Partner from its own funds. Subject to the limitations set out in this Agreement, the Limited Partners shall, in the aggregate, be responsible to contribute One Hundred (100%) percent of all operating, administrative, exploration and development expenses. 13.4 Allocation of Revenue Revenue will be credited as follows:

(a) Until all costs of the Partnership, including capital contributions, have been recovered (the pay-out amount) (i) Ninety-Five (95%) percent to the Limited Partners; and (ii) Five (5%) percent to the General Partner.

(b) Thereafter, until a further Two Hundred (200%) percent of the pay-out amount has been recovered: (i) Ninety (90%) percent to the Limited Partners; and (ii) Ten (10%) percent to the General Partner.

(c) Thereafter, (i) Eighty (80%) percent to the Limited Partners; and (ii) Twenty (20%) percent to the General Partner.

All payments to the Limited Partners shall be credited to the Limited Partners in accordance with the number of units held by each Limited Partner. 13.5 Allocation of Credits and Allowances Any tax credits or allowances will be allocated One Hundred (100%) percent to the Limited Partners in accordance with their pro rata share of units. 13.6 Unexpended Contribution Subject to the provisions relating to dissolution contained herein and The Partnership Act, the Limited Partners are not entitled to the return of their Partnership capital contributions except that any Partnership capital contributions which are unexpended and uncommitted by December, 2006, will be paid to Limited Partners in accordance with their sharing ratio. XIV. REGISTER AND TRANSFER OF LIMITED PARTNERSHIP UNITS 14.1 Unit Certificate

(a) The General Partner shall cause to be issued to each Limited Partner who has paid his Partnership capital contributions in full, a unit certificate in a form decided upon by the General Partner indicating that the registered holder thereof is the owner of the number of units represented by his Partnership capital contributions.



(b) If any unit certificate is lost, mutilated or destroyed, the General

Partner shall cause a replacement certificate to be issued to the Limited Partner upon receipt of evidence satisfactory to the General Partner of such loss, mutilation or destruction, and upon receiving such indemnification as it deems appropriate in the circumstances. 14.2 Transfer of Units

(a) Subject to the provisions of this Article XIV and subject to any applicable securities laws, a Limited Partner may transfer without charge any of his Units. Such transfer shall be effective upon registration of the appropriate notice and shall be entered on a register of Limited Partners as of that day. Any distribution made, or to be made hereunder, shall be distributed to those persons who are Limited Partners at the end of each calendar quarter. The General Partner and each Limited Partner, by execution hereof shall be deemed to have consented to the transferee becoming a Substituted Limited Partner upon filing of the amended Certificate. No transfer of any Unit is effective unless the transferee agrees to be bound as a Limited Partner of the Partnership by the terms of this Agreement and executes a transfer form substantially in the form set forth in clause 14.4 hereof.

(b) There shall be no transfer of less than a whole Unit.

(c) If a transferor of a Unit is a firm or corporation, or purports to transfer such interest in any representative capacity, or if an assignment results from the death, mental incapacity, or bankruptcy of a Limited Partner or is otherwise involuntary, the transferor or his legal representative shall furnish to the General Partner, such documents, certificates, assurances, court orders and other material as the General Partner may reasonably require to effect the said transfer.

(d) No assignment or transfer of a Unit shall relieve the assignor or transferor of any liability or obligation which arose before the date of such assignment or transfer.

(e) The General Partner, on the tenth business day of the month following the month in which the duly executed transfer form is received by the General Partner (or such earlier or later time as may be agreed upon by the General Partner, the transferor and the transferee) shall effect filings and registrations at such places as in the opinion of counsel to the Partnership are necessary to reflect the changes in membership of the Partnership.

(f) The General Partner, if requested, shall attempt to find a suitable purchaser of Units unless any securities legislation would require the registration of the General Partner or impose any other requirement which the General Partner in its discretion decides is excessive in the circumstances.

(g) A Unit may only be assigned or transferred with the consent of the General Partner, in its sole discretion, which consent shall not be unreasonably withheld or delayed. In particular, the General Partner may withhold its consent to a



transfer of less than Twenty-Five (25) Units, provided, however, that the consent to such transfer will not be withheld where the Units that such Limited Partner wishes to transfer are less than Twenty-Five (25) in number by virtue of a prior partial retirement of Units pursuant to Article XV hereof.

(h) If any Limited Partner should become a non-resident of Canada within the meaning of the Income Tax Act, he shall immediately use his best efforts to transfer his Units to an entity which is not a non-resident of Canada within the meaning of the said Act. If such a Limited Partner is unwilling or unable so to transfer his Units within Ninety (90) days of becoming a non-resident, the General Partner may sell the Limited Partner’s Units as the agent of the Limited partner in accordance with any applicable securities legislation and shall deliver the net proceeds obtained on the sale to the Limited Partner after deducting all its reasonable costs and expenses. Each Limited Partner hereby agrees to do all acts and execute all requisite documents necessary to carry out the purposes of this subclause. 14.3 Transfer Form A transfer of Units shall be in substantially the following form: I, the undersigned, a Limited Partner of Canore ‘86 - Limited Partnership (herein called the Partnership) hereby transfer, assign and sell to: _______________________________ (Name of Transferee) _______________________________ (Residence Address) all of my right, title and interest as a Limited Partner in the Partnership and constitute the above-named Transferee a Substituted Limited Partner to the extent of ________ Units and I agree to execute and deliver to the General Partner any documents required to effect a valid transfer of the said Units or which are necessary or advisable, in the opinion of the General Partner, to preserve the status of the Partnership as a limited partnership. I agree that the power of attorney previously granted to the General Partner will be effective for the purpose of executing and filing all certificates, amendments and other instruments necessary to give effect to this transfer. DATED this____ day of _________, 20___ ____________________ _____________________________ (Witness) (Signature of Limited Partner) ______________________________ (Residence Address) The above-named Transferee accepts this transfer and agrees to be bound, as a party to and as a Limited Partner in the Partnership, by the terms of the Limited Partnership Agreement, from time to time as amended.



The Transferee hereby irrevocably constitutes and appoints Canore Limited or such other General Partner as from time to time has control over the management of the Partnership, with full power of substitution, as his true and lawful attorney and agent, with full power and authority in his name, place and stead to:

(a) execute, swear to, acknowledge, deliver, file and record at the appropriate public offices any and all of the following (i) certificates and other instruments necessary or appropriate to

qualify or continue the Partnership as a limited partnership in Saskatchewan and in any other jurisdiction where the Partnership may conduct business;

(ii) instruments and certificates necessary or appropriate to reflect any amendment, change or modification of the Partnership in accordance with the terms of the Partnership;

(iii) conveyances and other instruments or documents necessary to reflect the dissolution and liquidation of the Partnership including cancellation of any certificates; and

(iv) instruments relating to the admission of additional or Substituted Limited Partners including the within Transferee; and

(b) execute and file with any governmental body, any documents necessary to be filed in connection with business of the Partnership.

The Transferee represents and warrants that he is not a non-resident of

Canada within the meaning of Income Tax Act.

The power of attorney granted herein is irrevocable and is a power coupled with an interest and will survive the death or incapacity of the undersigned and will extend to the heirs, administrators, successors and assigns of the Transferee. DATED this ____ day of ___________, 20 ___. _________________ ________________________ (Witness) (Signature of Transferee) ________________________ (Mailing Address of Transferee)

NOTE: 1. This transfer must be for a whole Unit or for whole Units Transfers of

fractional or partial Units will not be recognized or entered in the register of Limited Partners.

2. The signature of the Transferor must correspond exactly to the name which appears on the Unit Certificate.



XV. DISSOLUTION OF THE LIMITED PARTNERSHIP 15.1 Dissolution The Partnership shall be dissolved on December 31, 2043 and shall be dissolved earlier upon the happening of any of the following events:

(a) any event which makes it unlawful for the Partnership Business to be continued;

(b) the bankruptcy, insolvency, liquidation, dissolution or winding up of the General Partner or the occurrence of any other event resulting in a trustee or receiver being appointed to administer the affairs of the General Partner provided that such trustee or receiver has continued in office for a period of One Hundred And Twenty (120) consecutive days, unless a new General Partner is appointed within One Hundred And Twenty (120) days after the occurrence of such bankruptcy, insolvency, liquidation, dissolution, winding up or other event;

(c) the disposition of all assets of the Partnership; or

(d) after the Partnership Capital Contributions have been expended, the affirmative vote of the Limited partners given by Extraordinary Resolution.

15.2 Incapacity of Limited Partners The Partnership shall not be terminated by reason only of the death, incapacity or withdrawal of a Limited Partner or the admission of a new Limited Partner. Except as set forth in Articles XIV and XV hereof, a Limited Partner shall not have the right to withdraw from the Partnership. 15.3 Receiver The General Partner shall serve as the receiver of the Partnership charged with the responsibility of liquidating the Partnership upon its dissolution. If the General Partner is unable or unwilling to act in such capacity, the Limited Partners may by Ordinary Resolution appoint some other appropriate person or party to act as the receiver of the Partnership. The receiver shall proceed diligently to wind up the business of the Partnership and to distribute the net proceeds from the sale of the assets thereof in accordance with clause 15.4. During the course of such liquidation the receiver shall operate the properties and undertaking of the Partnership and in doing so shall be vested with all the powers and authority of the General Partner in relation to the Partnership under the terms of this Agreement. The receiver shall be paid its reasonable fees and reimbursed for its disbursements incurred in carrying out its duties hereunder.



15.4 Liquidation The receiver shall settle the Partnership accounts as expeditiously as possible and shall:

(a) sell or liquidate the assets of the Partnership;

(b) pay or compromise the liabilities of the Partnership;

(c) place in escrow a cash reserve fund for contingent liabilities in an amount reasonably determined by the receiver to be appropriate for such reserve fund. Such fund shall be held for such period as the receiver regards as reasonable and then shall be distributed pursuant to subclause (d); and

(d) after the receiver’s accounts have been audited, distribute the remaining assets in accordance with clause 13.4.

XVI. MEETINGS 16.1 Meetings An annual general meeting of the Limited Partners of the Partnership shall be held at least once every calendar year (commencing in 2005) and no more than 16 months after the holding of the last preceding general meeting. In addition, the General Partner may, at any time and from time to time, and shall, upon receipt of a written request from Limited Partners holding Twenty-Five (25%) percent of the outstanding Units, call a meeting of the Limited Partners. In the event that the General Partner fails to call such meeting within Fifteen (15) days after receipt of a written request to call such meeting, any Limited Partner may call such a meeting. Every meeting shall be held at a reasonable time and place in the City of Saskatoon. The directors and officers of the General Partner may attend and take part in discussions and proceedings of any meeting of Limited Partners. At the annual general meeting, the Limited Partners shall appoint the auditors of the Partnership for the ensuing year and shall receive and consider the report of the General Partner, the annual financial statements of the Partnership and the auditor’s report thereon. 16.2 Notice of Meetings At least Thirty (30) days’ notice of any meeting (and not more than Sixty (60) days’ notice) shall be given to the Limited Partners (and to the General Partner if the meeting has been called by a Limited Partner). Such notice shall state the time when, and the place where, the meeting is to be held and shall state briefly the general nature of the business to be transacted thereat. It shall not be necessary for such notice to set out the text of any resolution to be proposed or any of the provisions of this clause. The notice shall set out sufficient information to enable each Limited Partner to make a reasoned judgment on all matters to be decided at the meeting. No Extraordinary Resolution shall be passed at any meeting unless the specific subject matter of such resolution shall have been set out in the notice of meeting.



16.3 Chairman The President, or failing him any Vice-President, of the General Partner shall be the chairman of all meetings, unless those Limited Partners present in person or represented by proxy shall choose another person present to be chairman. 16.4 Quorum The Limited Partners present in person or represented by proxy at an annual general meeting of the Partnership at which only the business described in clause 16.1 above is to be transacted shall constitute a quorum. At all other meetings of the Partners, Two (2) Limited Partners present in person and representing, either in person or by proxy, at least Fifty (50%) per cent of the outstanding Units entitled to vote at the meeting shall constitute a quorum. If a quorum of Limited Partners shall not be present within Thirty (30) minutes from the time fixed for holding any such meeting, the meeting shall be adjourned to a date Fourteen (14) days later unless such date is a non-business day in which case it shall be adjourned to the next following business day at the same time of day and at the same place. Upon such an adjournment, at least Seven (7) days’ notice of the adjourned meeting shall be given to the Limited Partners (and to the General Partner if the meeting as adjourned had been called by a Limited Partner). At the adjourned meeting, the Limited Partners entitled to vote at the meeting present in person or represented by proxy shall form a quorum and may transact the business for which the meeting was originally called. 16.5 Votes On any question submitted to a meeting each Limited Partner shall be entitled to cast one vote for each Unit held by him. Except as otherwise specified in this Agreement, questions shall be decided by an Ordinary Resolution. In the case of joint registered holders of a Unit any one of them present in person or by proxy at the meeting may vote in the absence of the other or others; but in case more than one of them be present in person or by proxy, they shall vote together in respect of the Unit of which they are joint registered holders. 16.6 Proxies Votes at meetings of the Limited Partners may be cast personally or by proxy. The instrument appointing a proxy shall be in writing under the hand of the person so appointing or his attorney duly authorized in writing, or if the person so appointing is a corporation, under its seal or by an officer or attorney thereof duly authorized and shall cease to be valid one year from its date. Any individual may be appointed a proxy. The chairman of each meeting shall determine the validity of all instruments of proxy to be utilized at such meeting.



16.7 Validity of Proxies A vote cast in accordance with the terms of an instrument of proxy shall be valid notwithstanding the previous death, or insanity of the Limited Partner or revocation of the proxy or transfer of the Unit in respect of which the proxy was given, provided that no notice in writing of such death, insanity, revocation or transfer has been received at the place of meeting prior to the time fixed for holding of the meeting. 16.8 Solicitation of Proxies Any solicitation of proxies shall be governed by the provisions of The Securities Act as from time to time in force and the regulations thereunder and will comply with the laws of other jurisdictions in so far as they may reasonably be determined to be appropriate, it being the intention hereof that all Limited Partners from whom a proxy is solicited be provided with sufficient information to enable them to make a reasoned judgment on all matters for which the proxy is solicited. XVII. POWER OF ATTORNEY 17.1 Power of Attorney Each Limited Partner hereby irrevocably makes, constitutes and appoints the General Partner, and any successor to the General Partner under the terms of this Agreement, as his true and lawful attorney and agent, with full power and authority in his name, place and stead to:

(a) execute, swear to, acknowledge, deliver, file and/or record in the appropriate public offices in any jurisdiction which the General Partner considers appropriate any and all of: (i) certificates and other instruments necessary or appropriate to

qualify, or to continue the qualification of, the Partnership as a limited partnership in Saskatchewan and in any other jurisdiction where the Partnership may conduct business;

(ii) instruments and certificates necessary or appropriate to reflect any amendment, change or modification of the Partnership in accordance with the terms of this Agreement;

(iii) conveyances and other instruments or documents necessary to reflect the dissolution and liquidation of the Partnership including cancellation of any certificates; and

(iv) instruments relating to the admission of additional or Substituted Limited Partners; and

(b) execute and file with any government body, any documents necessary or appropriate to be filed in connection with the business of the Partnership or in connection with this Agreement.



The foregoing power of attorney is hereby declared by each Limited Partner to be an irrevocable power coupled with an interest, and it shall survive the death or incapacity of the Limited Partner and shall extend to and bind the heirs, executors, administrators, successors and assigns of each Limited Partner. Each Limited Partner agrees to be bound by any representation made by the General Partner and any successor thereto, while acting in good faith pursuant to the within power of attorney, and each Limited Partner hereby waives any and all defences which may be available to him to contest, negate or disaffirm the action of the General Partner and any successor thereto taken in good faith in accordance with the terms of the within power of attorney. XVIII. AMENDMENTS 18.1 Amendments to Limited Partnership Agreement Except as otherwise provided in this Agreement and subject to clause 18.3 hereof, no amendment to this Agreement shall be effective or binding upon the parties hereto unless the same shall be consented to by the General Partner and by the Limited Partners by means of an Extraordinary Resolution. 18.2 Prohibited Amendments Notwithstanding the above or any other provisions to the contrary which may be contained in this Agreement, no amendment to this Agreement shall be adopted if such amendment would change the Partnership to a general partnership or to an association taxable as a corporation or change the liability of or reduce the interests of the General Partner or the Limited Partners or require non-consenting Limited Partners to exchange their interests in the Partnership for shares or other securities or allow the Limited Partners to take part in the control of the business of the Partnership. 18.3 Amendments by General Partner The General Partner, without prior notice to or consent from any Limited Partner, may amend any provision of this Agreement from time to time:

(a) to add or to delete from this Agreement any further covenants, restrictions, or provisions which in the opinion of counsel to the Partnership are added or deleted only for the protection of the interests of the Limited Partners;

(b) to cure an ambiguity, clerical error or manifest mistake or to correct or supplement any provisions contained herein which in the opinion of counsel to the Partnership may be defective or inconsistent with any other provision contained herein, provided that, in the opinion of such counsel, the cure, correction or supplemental provision does not and will not materially adversely affect the interest of the Limited Partners; or



(c) to make such other provisions in regard to matters or questions arising under this Agreement which in the opinion of counsel to the Partnership do not and will not materially adversely affect the interests of the Limited Partners.

18.4 Effective Date and Notice of Amendment The effective date of any amendment to this Agreement will be the day following the day on which an amendment has been filed if required by the laws of Saskatchewan. Limited Partners will be notified of full details of any amendment to this Agreement within 30 days of the effective date of the amendment. XIX. MISCELLANEOUS 19.1 Notice (a) The addresses for service of the General Partner and the Limited Partners are:

(i) General Partner, c/o X, Y, Z, Barristers and Solicitors, 123 Legal Avenue, Lawville, Saskatchewan, S8L 5L9;

(ii) The Limited Partners, the mailing addresses set out in the Register of Units;

(iii) In the case of a substitute General Partner, such address as it may stipulate by notice to the General Partner. The General Partner or substitute General Partner shall promptly give notice thereof to all Limited Partners.

(b) A Limited Partner may, from time to time, change the address for service hereunder by written notice to the General Partner. The General Partner may change its address for service by written notice to the Limited Partners. Any notice may be served on the parties by hand delivery or by mailing the same, postage prepaid, in a properly addressed envelope addressed to the party to whom the notice is to be given at its address for service hereunder and will be deemed to be effected, provided, however, that in the event of a general postal disruption, notice shall not be provided by mail. 19.2 Provisions Severable If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to any person or circumstances other than those to which it is held valid, shall not be affected thereby. 19.3 Counterparts This Agreement may be executed by multiple counterparts, each of which shall be deemed to be an original and all of which shall be construed together as one agreement.



19.4 Time Time is of the essence of this Agreement. 19.5 Waiver of Partition The General Partner and each Limited Partner hereby irrevocably waives during the term of this Agreement any rights which he may have to maintain any action for partition or sale with respect to leases or claims held by the Partnership or any interests therein or any interests of the Partnership in real or personal property, whether corporeal or incorporeal. 19.6 Further Assurances Each party hereto agrees to do all such things and take all such actions as may be necessary to give full force and effect to the matters contemplated by this Agreement. 19.7 Headings The table of contents and headings preceding the Articles hereof have been inserted for ease of reference only and do not affect the meaning, construction or effect of this Agreement. 19.8 Entire Agreement This Agreement will constitute the entire agreement between the parties and there are no other written or verbal agreements or representations. 19.9 Governing Laws This Agreement shall be governed by and construed in accordance with the laws of the Province of Saskatchewan. 19.10 Successors and Assigns This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. XX. EXECUTION 20.1 Execution IN WITNESS WHEREOF this Agreement is executed as of the day and year first above written. GENERAL PARTNER LIMITED PARTNERS by their Attorney GENERAL PARTNER Per: Per: _______________________ ___________________________


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