A partnership occurs when two or more people decide that they are going to work together in a business and register a form called a Partnership Registration and, in some cases, enter into a Partnership Agreement.
There are three types of associations in Canada. A general partnership, a limited partnership, and a limited liability company.
A general partnership occurs when all people have equal control over society and make decisions together.
A limited partnership occurs when a partner decides to agree to be a partner and, in most cases, provides some funds to the partnership, but does not want to be a part of the day-to-day operations. Your contribution is considered “limited”. A limited partnership can be formed with a general partner and a limited partner.
A limited liability partnership is a partnership in which the partners are not liable for the partnership’s debts, obligations, or liabilities that result from the actions or negligence of another partner, employee, or agent of the partnership. Lawyers and accountants generally form limited liability companies.
There is no limit to the number of members in any type of association. A limited partnership would have to have at least one limited partner and one general partner, however you could have as many of each as you like. A general partnership must have at least two general partners and you can have as many general partners as you want, but you would not have limited partners.
Alliances are governed by provincial and territorial legislation and a form generally called the Alliance Registry must be completed and submitted at the corresponding provincial or territorial government office. You can register the association yourself by completing the appropriate form and assisting your local provincial or territorial government and, in some cases, you can register online.
In some provinces and territories, you will be required to provide a Nuans name search report or similar report to register an association. In Ontario, this is not required. However, regardless, you should do a preliminary nuans name search (usually free) to determine if the name is independently available. It is very important that you ensure that the name you choose for your company is not similar or the same as any other name already registered. Even if the name is exactly the same, except for the end of the name in the case of a corporation, you should not use the name yet. An example of this would be if you registered a company called “Johnson Partners” and a name called “Johnson Partners Ltd.” already existed. In some jurisdictions, the government would allow you to make such a registration, but it would not be a good idea as it is a conflict and Johnson Partners Ltd. may not be very satisfied with your choice and could take it to court in an attempt to change it if it is. from a company that is highly positioned in the market. The name of your proposed company should be as distinct and different from all other trade names, partnerships, sole proprietorships, trademarks, or companies as possible.
Sometimes two or more companies decide to form a partnership.
The following information is required to register an association:
1) The name of the company
2) The province or territory where the association will be located.
3) The commercial address of the association.
4) The postal address of the association (which may be the same)
5) The name and address of each partner.
6) The purpose or nature of the company’s business.
7) If any partner is a company, then the company’s corporate number.
Associations are easy to form and have low start-up costs. Each partner will bring their own skill set to the partnership. One partner will have skills in some areas and another in other areas that may result in broader management knowledge and the ability to diversify tasks and responsibilities. More than one point of view can result in more effective decision making.
When a partnership is formed, the partners pool their personal assets and therefore the business partnership may require less financing than a sole proprietorship. It is also easier to borrow from credit resources when more than one person is required to repay the loan.
There is little government regulation for associations. Formation is simple with an association registration and there are no annual filings that keep the cost of forming and maintaining an association low.
In a general partnership, each partner is responsible for all debts and obligations of the partnership, including those incurred by a partner without the knowledge or authorization of other partners. If one of the partners is sued, the other partners in the partnership are equally liable for any financial judgment imposed by a court. Unlike a corporation, which is considered an entity unto itself, the partners are personally liable for any debt owed to the partnership. The partners are responsible for each of the actions of the other partner. Each partner is considered to be aware of any information that has been given to another partner. Therefore, partners must be able to trust each other to disclose all relevant information.
If there is no partnership agreement in force, the partnership is dissolved upon the death or retirement of any partner or the acceptance of a new partner. A partnership agreement can be entered into with clauses in it that stipulate that surviving partners can purchase the interests of the deceased or retiring partner. See below for more information on partnership agreements.
Profits must be shared by all partners equally, unless there is a partnership agreement to provide different percentages for different partners who invest more or less in the partnership.
If a partner, without the consent of the other partners, conducts a business of the same nature and is competing with that of the partnership, the partner must account for and pay the company all the profits made by the partner in that business.
A partnership is a relationship between people who do business in common with a view to obtaining benefits, regardless of whether the partners call their common business a partnership. Evidence of a partnership includes joint ownership, participation in gross returns, and receipt of a share of profits. Relationships that were not intended to be partnerships may later be considered as such, and you should therefore take care to clearly define your business relationships.
Limited partners in a limited partnership are not responsible for the acts of the firm. If it can be shown that a limited partner participated in the management of the company, he can be considered a general partner and then he would lose his liability protection.
Limited partnerships must comply with the regulatory requirements of the Limited Partnership Laws in the province or territory where the limited partnership was formed and, as such, must provide certain notices to the government and maintain certain records.
A limited partner has no right to participate in the management and therefore that person has little control over his investment in the limited partnership.
It is more expensive to register a limited company.
You should have a partnership agreement. When a partner decides to leave a partnership, the partnership is automatically dissolved unless a partnership agreement has been signed that says otherwise. If the business is viable, the remaining partners may not want 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 an association agreement, then the Association Law of the particular province or territory in which the association was formed must be followed, and in most cases, legal remedies are limited. No matter how long you’ve known the person you decide to partner with, including your spouse, you still need to form a partnership agreement.
Your best option would be to have an attorney draft a partnership agreement, and each party to the agreement should have an independent attorney. This is to ensure that each party is protected from any changes that occur in society, such as death, resignation, illness, disagreements, etc. and also to determine in writing how the financial aspects of the business will be managed. Without a well-written partnership agreement, you could be exposed to a problem down the road that could cost you a loss of income if you haven’t planned a partnership agreement with the proper provisions. Independent advice is especially important, as an attorney will consider the agreement from your personal point of view and will insist on adding clauses to protect you in the future for any number of situations that occur. Law firms operate as partnerships and have a better understanding of the law behind all types of partnerships.
There is no law that says you must have a lawyer. If you cannot afford an attorney to draft your association agreement, make sure you have read the legislation for associations in your particular province or territory and make sure you have some type of association agreement. Also make sure the agreement contains provisions on what happens if a partner becomes ill, wishes to resign, or dies, as well as the corresponding profit sharing. Not having a partnership agreement would be a bad choice.