A partnership is a business structure in Ontario where two or more individuals carry on business together for profit. While partnerships can be used in various business contexts, they are generally not the preferred organizational structure due to the flow-through of liability, income, and expenses directly to the partners.
For this reason, many business owners choose to operate through a corporation, which provides a separate legal entity and limits both liability and taxation within the corporation itself.
General Partnerships
A general partnership is the most common and simplest form of partnership. In this structure:
- All partners share equally in profits and losses
- All partners participate in management
- Each partner has unlimited personal liability for the debts and obligations of the partnership
Because personal assets may be at risk, general partnerships are typically used only where liability exposure is minimal. They are straightforward to form, and generally require only a written partnership agreement between the partners.
General Partnership – Limited Partnership (GP–LP)
A GP–LP structure includes two distinct types of partners:
General Partners
- Manage the business
- Hold unlimited personal liability for partnership debts
Limited Partners
- Contribute capital
- Have liability limited to their investment
- Do not participate in day-to-day operations
This model is commonly used for real estate and investment ventures, where passive investors want limited liability while general partners oversee the business.
Limited Liability Partnerships (LLPs)
A Limited Liability Partnership (LLP) is a specialized form of partnership in which partners’ liability is limited to their own negligence or wrongful acts. In other words:
- Partners are not personally liable for the negligence, errors, or omissions of other partners
- A claimant can recover only from the partner who acted negligently
- The partnership firm’s assets remain fully at risk
LLPs were introduced in Ontario in 1998 through amendments to the Partnerships Act.
LLPs are permitted only for the purpose of carrying on a profession, and only where an enabling statute authorizes such a structure. Examples include:
While technically any business may operate as an LLP, in practice they are generally limited to regulated professions such as lawyers, accountants, and certain other professionals.
Summary
Each partnership structure offers different levels of liability protection, control, and tax treatment. Choosing the most appropriate structure depends on:
- The nature of the business
- The number of partners
- Desired liability protection
- Capital contributions and tax considerations
It is essential to speak with one of our corporate lawyers to determine the partnership type best suited to your business and long-term goals.
Advantages of a Partnership
- Low cost and easy to establish (particularly general partnerships)
- Light regulatory requirements
- Flow-through of revenue and expenses may offer tax advantages
- No separate business tax return required
Disadvantages of a Partnership
- Flow-through of liability to the partners
- Income, losses, and obligations are reported personally
- Less protection and fewer planning options compared to a corporation
