Partnerships

ASSESSING WHICH PARTNERSHIP IS IDEAL FOR YOU

A partnership is a legal relationship between two or more individuals or entities who carry on a business together with a view to profit. Unlike a corporation, a partnership does not create a separate legal entity in most cases—meaning the partners themselves are typically responsible for the obligations, debts, and liabilities of the business. Partnerships are a common structure for professional practices, family businesses, and closely held commercial ventures where formal corporate governance may not be necessary or desirable. In Ontario, partnerships are governed primarily by the Partnerships Act, which sets out the rights, duties, and obligations of partners unless varied by agreement.

At Jahanshahi Law Firm, we assess your short and long-term business plans to advise which partnership is the right business vehicle for you. We guide you through the partnership process and draft a partnership agreement as necessary. While a partnership agreement is not mandatory for the formation of certain partnerships, we always recommended that a partnership agreement be drafted by an experienced business lawyer to ensure the agreement is enforceable, comprehensive, and correctly sets out the intentions of the partners. As always, you should consider seeking accounting and tax advice from an experienced accountant prior to deciding on an entity for your business. In Ontario, there are three types of partnerships: general partnerships, limited partnerships, and limited liability partnerships.

GENERAL PARTNERSHIPS

A general partnership is the most common and basic form. It arises automatically when two or more people begin operating a business together with the intention of making a profit, even if they do not have a written agreement. In a general partnership, all partners are jointly and severally liable for the debts and obligations of the business. This means each partner can be held personally responsible for the full amount of the partnership’s liabilities, regardless of their individual involvement in a particular transaction. While a written partnership agreement is not legally required, it is strongly advised. A well-drafted agreement can clarify the terms of the relationship, outline how decisions are made, define how profits and losses are shared, and establish mechanisms for resolving disputes or exiting the partnership.

If a general partnership is the ideal business vehicle for you, our business law team will assist the prospective partners in choosing a business name, registering, and filing the necessary documentation with the Ministry of Public and Business Service Delivery, and drafting a partnership agreement as necessary. Most importantly, we will ensure that the formation of your general partnership fully complies with applicable business law legislation. While general partnerships can be formed without a partnership agreement, we always recommend that the partners enter into a detailed partnership agreement that sets out the terms and conditions of the partnership in addition to the rights and obligations of the partners.

LIMITED PARTNERSHIPS

A limited partnership is a hybrid structure that allows for two classes of partners: general partners, who manage the business and bear unlimited liability, and limited partners, who contribute capital but do not participate in management and whose liability is limited to their investment. Limited partnerships are frequently used in investment structures, real estate developments, and private equity arrangements, where investors want exposure to returns without operational control or risk. In Ontario, limited partnerships must be registered under the Limited Partnerships Act, and the legal documentation must clearly distinguish between the roles, rights, and obligations of each class of partner. If a limited partner begins acting like a general partner—by exercising management control or signing contracts—their liability protection may be compromised.

LIMITED LIABILITY PARTNERSHIPS

A limited liability partnership (LLP) is a specialized form of partnership available only to certain regulated professions, such as lawyers and accountants. In an LLP, partners are generally not personally liable for the negligence, misconduct, or malpractice of their fellow partners. Each partner remains liable for their own actions and for general obligations of the firm, but the structure offers an additional layer of protection from vicarious liability. LLPs must be registered under the Partnerships Act and approved by the relevant professional regulatory body. For example, a law firm must obtain authorization from the Law Society of Ontario before operating as an LLP. This structure is particularly beneficial for professional firms that want to operate under a shared brand and cost structure while limiting personal exposure to the risks posed by others in the partnership.

An LLP allows members of the same profession to combine their resources for the purpose of moving the business forward while remaining only liable for their own conduct within the limited liability partnership. In order to form a limited liability partnership, the partners must both comply with the Partnership Act and the rules and regulations set by the regulatory body that governs the profession. For example, in the case of lawyers wishing to form a limited liability partnership, all lawyers are required to maintain professional liability insurance in accordance with the by-laws set out by the Law Society of Ontario.

If you are a member of a profession that is authorized by an act to form a limited liability partnership, we will carefully examine your business situation and guide you throughout the limited liability partnership formation process. Our business law team will draft the limited liability partnership agreement and ensure that the proposed business name is in compliance with legislation, we will assist in obtaining authorization to practice as a limited liability partnership from your profession’s governing body, and we will file the necessary documentation with the Ministry of Public and Business Service Delivery as necessary.

If you are thinking about forming a partnership, contact us today to set up a consultation where you are able to discuss your questions or concerns regarding the formation of a partnership with a business lawyer.

FAQ

What is a partnership?

A partnership is a legal relationship between two or more individuals or entities who agree to carry on a business together with a view to profit. In Ontario, partnerships are governed by the Partnerships Act. Unlike corporations, most partnerships are not separate legal entities, meaning partners are personally responsible for the obligations of the business unless limited liability is specifically provided under the law.

What Act Governs Partnerships in Ontario?

In Ontario, general partnerships and limited liability partnerships are governed by the Partnerships Act, while limited partnerships are governed by the Limited Partnerships Act.

Do I need a written partnership agreement?

Legally, a written agreement is not required to form a partnership in Ontario. However, it is strongly recommended. A written partnership agreement sets out the rights, duties, and expectations of each partner, and can prevent costly disputes down the line. Without one, the default rules under the Partnerships Act apply—which may not reflect what the partners actually intended.

What is the Tax Treatment of Partnerships?

Partnerships are not separate taxable entities. Instead, income and losses “flow through” to the individual partners, who report their share on their personal or corporate tax returns. It’s important to track how income, losses, and capital contributions are allocated, especially when partners are in different tax brackets or use corporations to hold their interests.

Can a corporation be a partner in a partnership?

Yes. A corporation can act as a partner in a general or limited partnership. This is common in tax planning and limited partnerships where corporations are used as general partners or limited partners to help manage liability and facilitate income splitting.

How is a partnership dissolved?

A partnership may be dissolved voluntarily under the terms of a partnership agreement, or automatically upon the occurrence of certain events—such as the death or withdrawal of a partner, bankruptcy, or the expiration of a defined term. Proper planning through a written agreement can allow for continuity and succession in the event of a partner’s departure.

What happens if I don’t register my partnership?

If you operate under a name that is not the full legal names of all partners, you are required to register your business name under the Business Names Act. Failure to do so can result in fines and may impact your ability to enforce contracts or open business accounts. Registration also provides public notice of your business and improves credibility with clients and vendors.

How can Jahanshahi Law Firm help with partnerships?

We assist clients with every stage of the partnership process—from choosing the right structure (general, limited, or LLP), to drafting or reviewing partnership agreements, registering under the appropriate legislation, and advising on tax and succession planning. Whether you’re starting a business, restructuring an existing one, or resolving a dispute between partners, we offer clear, practical legal advice tailored to your goals.

To find out more information about partnerships, visit the Business Law Insights section of our website.