Pawlina Law can assist you with drafting and reviewing a partnership agreement. By assisting you with making informed business decisions and by having things done properly from the outset, we may save you time and money in the long run. We can advise you in a wide range of services, including completing a partnership agreement. There are three types of partnerships in Ontario, a general partnership, a limited partnership, and a limited liability partnership. More information on resolving a partnership dispute can be found here.
General Partnership
A general partnership in Ontario is one of the simplest forms of business entity involving multiple individuals. It can even be created accidentally or unintentionally. A general partnership will likely need to register its firm name due to Section 2(3) of the Business Names Act which states: “No persons associated in partnership shall carry on business or identify themselves to the public unless the firm name of the partnership is registered by all of the partners.”
In a general partnership, all partners share the management of the business and each is personally liable for all the debts and obligations of the business. This means that each partner is responsible for the actions of his or her partners and must assume the consequences of the actions of the other partner(s). For this reason, it is important to get legal advice when dealing with business partners as you could be personally liable for the debts incurred by another business partner.
Ontario Partnership Act
Without a partnership agreement, the following provisions are some of the Partnerships Act (Ontario) that should be considered in a partnership dispute:
- Partners equally share in the capital and profits of the business and contribute equally towards the losses (Section 24(1))
- Partners are bound to render true accounts and full information of all things affecting the partnership to any partner or the partner’s legal representative (Section 28)
- Every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership or from any use by the partner of the partnership property, name or business connection. (Section 29)
- Every partner may take part in the management of the partnership business (see s. 24(5) of the Act).
- Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, but no change may be made in the nature of the partnership business without the consent of all existing partners. (Section 24(8))
- Consent of all the partners is required for the variation mutual rights and duties of partners, and the introduction of new partners (Section 20 and Section 24(7))
- Partners have a duty not to compete with the firm (Section 30)
- No majority of the partners can expel any partner (Section 25)
- A partnership is dissolved if entered into for an undefined time if a partner gives notice to the other partners of the intention to dissolve the partnership (Section 32)
- Death or insolvency of a partner results in the dissolution of the partnership (section 33(1))
- At the option of the other partners, a partnership may be dissolved if any partner suffers that partner’s share of the partnership property to be charged (Section 33(2))
- A partnership is dissolved if the partnership’s business becomes illegal (Section 34)
- On application to the court by a partner, the court can dissolve a partnership (Section 35)
- A partnership agreement can change some of the rules imposed by the Partnerships Act (Ontario) Pawlina Law can ensure you understand the risks and obligations of entering a business partnership.
Limited Liability Partnership
Limited Liability Partnerships (LLP) are a type of general partnership. In a LPP, each partner’s liabilities is limited to the amount they put into the business. LLPs are only permitted in Ontario for the sole purpose of carrying on a profession and that LLP must be governed by an Act that allows an LLP to practise as a profession. Thus, LLP are governed by the Partnerships Act (Ontario) and any act that allows a profession to use them. For example, the Law Society Act, R.S.O. 1990, c. L.8 allows lawyers to operate using LLPs.
Limited Partnership
In a limited partnership, there are general partners who control and manage the business and limited partners who only contribute capital. Limited partners take no part in control or management and are liable for debts to a specified extent only. These partnerships are governed by the Limited Partnerships Act, R.S.O. 1990, c. L.16. There are special rules applicable to limited partnerships. We can also assist you with preparing and reviewing a limited partnership agreement.
What is the difference between a limited partnership and a general partnership?
The key differences between a limited partnership and a general partnership are control and liability. In a general partnership,every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while the person is a partner. In a limited partnership, a limited partner is not liable for the obligations of the limited partnership except in respect of the value of money and other property the limited partner contributes or agrees to contribute to the limited partnership. In a general partnership, every partner is an agent of the firm and of the other partners for the purpose of the business of the partnership.
In a limited partnership, a general partner in a limited partnership has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a partnership without limited partners except that, without the written consent to or ratification of the specific act by all the limited partners, a general partner has no authority to:
In a limited partnership, a general partner in a limited partnership has all the rights and powers and is subject to all the restrictions and liabilities of a partner in a partnership without limited partners except that, without the written consent to or ratification of the specific act by all the limited partners, a general partner has no authority to:
- do any act in contravention of the partnership agreement;
- do any act which makes it impossible to carry on the ordinary business of the limited partnership;
- consent to a judgment against the limited partnership;
- possess limited partnership property, or assign any rights in specific partnership property, for other than a partnership purpose;
- admit a person as a general partner;
- admit a person as a limited partner, unless the right to do so is given in the partnership agreement; or
- continue the business of the limited partnership if a general partner dies, retires or becomes incapable as defined in the Substitute Decisions Act, 1992 or a corporate general partner is dissolved, unless the right to do so is given in the partnership agreement.