Category Archives for "Partnerships"

Thinking About a Business Partnership in Canada?

By Randall Orser | Business , Business Income Taxes , Partnerships

Are you considering entering into a business partnership?  A business partnership is one or more legal entities such as individuals, corporations, trusts or partnerships pooling their resources to operate a shared business.  The resources that each partner brings to the partnership does not have to be financial, it can be also be skills, labour, or property.  Although all partners will share the risk in the partnership they may or may not equally share the business profits, losses or liability, each person’s share is determined by the partnership agreement that is drawn up.  The amount of liability for each partner will depend upon the type of partnership which is created.

There are three types of partnerships available in Canada:

GENERAL PARTNERSHIP - This is the most common type and is defined as a business arrangement between one or more individuals who share the profits and liabilities of the business.  In this type of partnership all partners are fully liable for the debts, contractual obligations and torts resulting from the business operations and all can be personally sued for something that happens in the business.

LIMITED PARTNERSHIP - This is a partnership of one or more general partners who have unlimited liability and one or more partners with limited liability depending on their contribution to the business.  Limited partnerships are often set up with a corporation as the general partner and the individuals as limited partners.  A limited partner can also be a “silent” partner where they contribute financially and may provide advice, but they are not otherwise involved in the business.

LIMITED LIABILITY PARTNERSHIP – This gives the partners more protection than if they were general partners. For example, if a client wanted to sue the partnership only the partner who had worked with the client would have assets at risk.  Most provinces only allow Limited Liability partnerships in high-risk professional businesses such as lawyers, accountants or doctors where there is little overlap in the everyday business of each partner, and the protection provided varies between provinces.  Here is the link to the partnership act in BC. http://www.bclaws.ca/civix/document/id/complete/statreg/96348_01

For tax purposes partnerships are treated like sole proprietorships.  Each partner reports their own income and pays tax on their personal tax return, and reports profits and losses accordingly.

No matter which type of partnership you are considering, a written partnership agreement is a must so that all participants understand what is involved in the partnership.  

From an article by Susan Ward