FORMING PARTNERSHIPS IN THE PROVINCE OF ONTARIO
In Ontario, there are three different types of partnerships: general partnerships, limited liability partnerships, and limited partnerships. Each partnership type has unique elements that may make one more appealing than the others. At Jahanshahi Law Firm, our business law team can help you determine which type of partnership may work best for you after carefully assessing your personal, business, and tax situation. Below you will find further information regarding each type of partnership in Ontario.
A general partnership is a for-profit business entity where at least two individuals or entities carry on business in common with a view to profit. General partnerships in Ontario are governed by the Partnerships Act. Individuals, corporations, or a trust can hold partnership status in a general partnership. In a general partnership, the partners have unlimited liability for damages, financial losses, and liabilities of the business. To form a general partnership, the partners should create a business name, register with the Ministry of Public and Business Service Delivery, obtain a business number and HST number from Canada Revenue Agency when necessary, and enter into a partnership agreement. Where no partnership agreement exists or if an existing partnership does not address a specific matter, the Partnerships Act will operate in place of an agreement or missing terms. Where no partnership agreement exists, the partners will share profits, liabilities, and losses equally.
It is important to have a well-drafted partnership agreement since it allows the partners to dictate the relationship on their own terms and clarifies procedures for instances where a partner wishes to leave the partnership. Examples of common terms in a partnership agreement include the percentage of ownership for each partner, the partner’s role within the business, the compensation of the partners, term length, how decisions are to be made, and how conflicts are resolved. We recommended having a business lawyer draft the partnership agreement because a well-drafted partnership agreement can reduce the likelihood of lawsuits arising from dissatisfied partners.
LIMITED LIABILITY PARTNERSHIPS
A limited liability partnership is a distinct type of partnership, governed by the Partnerships Act. Limited liability partnerships are reserved for certain professions like dentists, lawyers, accountants, and engineers. In Ontario, a limited liability partnership may only carry-on business for the purpose of practicing a profession expressly governed by an Act. For example, in Ontario, the Dentistry Act authorizes dentists to form a limited liability partnership. Limited liability partnerships must specify in their business name that they are limited liability partnerships. Limited liability partnerships enable multiple individuals to combine their resources without taking on the liability of other partners.
The final type of partnership is a limited partnership, which is governed by the Limited Partnerships Act. A limited partnership can consist of one or more general partners and one or more limited partners. Typically, the general partner will manage the business, while the limited partners may only act as investors since limited partners cannot become involved with the management of the firm. In exchange for not being able to hold management positions within the partnership, limited partners are able to enjoy limited liability, while the general partner’s liability remains unlimited. Limited partners are only liable to the extent of their financial or tangible (i.e. assets) contribution to the business.
If you are planning on entering into a partnership, contact us today to set up an initial consultation with our business law team.
Disclaimer:The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.