Partnership Agreements

A partnership is an arrangement where two or more persons (or corporations) carry on business in common with a view to profit. While a partnership can be formed without a partnership agreement, it is strongly recommended that a written agreement be put into place. Partnerships are unique corporate structures in that they are not considered a separate legal person for tax purposes, and therefore have different tax treatment under the Income Tax Act (Canada) than corporations. The great thing about partnerships is that they offer tremendous flexibility in terms of how the business arrangement will work.

Partnership Agreements are often complex agreements containing income distribution, capital contribution, governance, liability, and dispute resolution mechanisms. Each one is fully customized to align with the business being conducted and the needs of the parties.

Partnership agreements can be complicated, but they are critical for smooth operation of the partnership. We recommend contacting an experienced corporate lawyer for assistance with your agreement.

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Three Primary Types of Partnerships:

General

A general partnership is a business that has been established by two or more individuals or corporations. This is the default business structure for businesses with multiple owners in Canada.

Limited

A limited partnership is a form of general partnerships, however, it differs in that a limited partnership has only one general partner with unlimited liability, who is supported by other

'limited partners'.

Limited Liability

A limited liability partnership allows for multiple partners to operate their business with the assurance that each partners liabilities will be limited to the amount they personally put into the business.

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Why do you need a partnership agreement?

Partnerships offer a lot of freedom and flexibility to the partners when it comes to management and decision-making. Therefore, it is essential that clear agreements are put in place to address issues like profit-sharing, decision authority, and dispute resolution. Without having an agreement in place, partners face the risk of disputes arising, with no way of resolving them.

When do you Need a Partnership Agreement?

We recommend entering into a partnership agreement at the time the partnership is initially formed. The owners can ensure that their expectations and goals align, and can find common ground on how the company should be run, and who will be responsible for what roles. Having an agreement in place at the onset is an effective way to reduce friction and will allow for manageable dispute resolution, if and when they arise.

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