A partnership is form of business, when two or more people decide to work together in a business and they register a form called a Partnership Registration and, in some cases, enter into a Partnership Agreement. There are three types of partnerships in Canada. A general partnership, a limited partnership and a limited liability partnership. There is no limit to the number of partners in any type of partnership. A limited partnership must have at least one limited partner and one general partner however it could have as many of each as it wishes. A general partnership must have at least two general partners and can have as many general partners as it wishes but it would not have any limited partners.Partnerships fall under the provincial and territorial legislation and a form usually called a Partnership Registration must be completed and filed with the appropriate provincial or territorial government office. You can register the partnership yourself by completing the appropriate form and attending your local provincial or territorial government and in some cases may be able to register online. In some provinces and territories you will be required to provide a Nuans Name Search report or similar report to register a partnership. In Ontario this is not required.
In a general partnership each partner is liable for all of the partnership's debts and obligations, even those incurred by one partner without the knowledge or authorization of other partners. If one partner is sued then the other partners in the partnership are equally responsible for any financial judgment imposed by a court. Unlike a corporation, which is considered an entity on its own, partners are liable personally for any debts to the partnership. Partners are responsible for each of the other partner's actions. Each partner is deemed to know any information that has been given to another partner. Therefore partners must be able to trust each other to reveal all information.
If there is no partnership agreement in place, a partnership is dissolved upon the death or withdrawal of any partner or the acceptance of a new partner. A partnership agreement may be entered into with clauses therein which provide that the surviving partners may purchase the interests of the deceased or withdrawing partner. You should have a partnership agreement. When one partner decides to leave a partnership the partnership is automatically dissolved unless a partnership agreement has been signed saying otherwise. If the business is viable the remaining partners might not wish to dissolve the business. Also, in cases of disputes, it is a good idea to have some clauses in your partnership agreement to cover possible situations that may arise. If you do not have a partnership agreement in place then the Partnership Act of the particular province or territory in which the partnership was formed must be followed and in most cases the statute remedies are narrow.
Your best option would be to have a partnership agreement drafted up by a solicitor and each party to the agreement should have independent counsel. This is to ensure that each party is protected from any changes occurring in the partnership such as a death, resignation, sickness, disagreements, etc. and also to determine in writing how the financial aspects of the business will be managed. Without a well drafted partnership agreement you could be opening yourself up to a problem in the future which could cost you a loss of income if you have not provided for a partnership agreement with proper provisions. Independent advice is especially important since a solicitor will look at the agreement from your personal view and insist on adding clauses to protect you in the future for any number of situations occurring. Law firms operate as partnerships and have a better understanding of the law behind all types of partnerships.
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