What are the tax advantages of a partnership?

All income flows through to the partners as there is no tax paid at the partnership level. Therefore, there is not double taxation. This also means that excess income will not be shielded from tax.

What is the main disadvantage of a partnership?

Each of the partners is jointly liable for the debts of the business. Therefore, if a partnership incurs debts greater than its assets, creditors can look at the personal assets of the partners.

Should You Register as a Limited Liability Partnership (LLP)?

Should You Run Your Business Through a Limited Liability Partnership?

Choosing the right business structure is one of the most important decisions when establishing a company. For professionals in Ontario, a Limited Liability Partnership (LLP) may offer valuable protections and tax advantages. But is it the right fit for your practice?

This guide explains what an LLP is, how it works, its advantages, registration requirements in Ontario, and when this structure makes sense.

What Is a Partnership Structure?

A partnership exists when two or more individuals carry on a business together for profit. In a traditional general partnership, partners share:

Management of the business
Control and decision-making
Liability

While the partnership is considered a separate legal entity, partners in a general partnership are typically jointly and severally liable. This means that if one partner is sued for negligence or breach of contract, the claimant can pursue:

The partner at fault
Any or all partners
The personal assets of the partners

This differs significantly from a corporation, where owners (shareholders) have limited liability.

What Is a Limited Liability Partnership (LLP)?

A Limited Liability Partnership is a special type of general partnership that limits each partner’s personal liability. Prior to 1998, partners in Ontario could not limit their personal exposure. The Partnerships Act was amended to introduce the LLP structure, providing important protections.

In an LLP:

A partner is not personally liable for negligence, malpractice, or errors committed by other partners or employees.
A claimant can only pursue the partner directly responsible for the misconduct.
The LLP itself remains fully liable, and business assets can still be at risk.

In other words, LLPs protect innocent partners while maintaining accountability.

Who Can Operate as an LLP in Ontario?

In Ontario, LLPs are available only to regulated professions, such as:

Lawyers
Accountants
Midwives
Other professions governed by enabling legislation

While an LLP can theoretically carry on any business, in practice, this structure is mostly reserved for professionals who are subject to licensing and regulatory oversight.

How to Register a Limited Liability Partnership in Ontario

To register an LLP, the business must meet specific naming and filing requirements under the Business Names Act.

Naming Rules

The business name must end with one of the following:

“Limited Liability Partnership”
“LLP” or “L.L.P.”
“Société à responsabilité limitée”
“s.r.l.”

Registration Process

Complete Form 6, available from the Ministry of Government Services.
Submit the form for certification and obtain a Business Identification Number (BIN).
File the LLP registration with the Ministry using the BIN.

Ongoing Requirements

Registrations must be renewed every five years.
Changes, such as adding or removing partners or changes of address, must be filed within 30 days.
If all partners are changing or the business name is changing, a new registration is required.
If the business name is no longer in use, a cancellation must be filed within 30 days.

Advantages of a Limited Liability Partnership

While limited liability is the most notable benefit, LLPs offer several compelling business and tax advantages.

1. Limited Personal Liability

Partners are protected against personal exposure from the actions, mistakes, or negligence of other partners or employees, protecting personal assets and reducing individual risk.

2. Flexible Governance

LLPs allow partners to design their own management structure. Unlike corporations:

There is no requirement to report activities to shareholders or directors.
Partners can move capital, assets, and funds freely under the partnership agreement.

3. Pass-Through Taxation

Like traditional partnerships, LLPs are pass-through entities, meaning:

The partnership itself does not pay income tax.
Income flows through to the partners, who pay tax individually.

This eliminates double taxation, although high-earning partners may still be taxed at the top marginal rates.

4. Strong Tax Planning Opportunities

Start-up expenses and partnership losses can help reduce personal tax liability. For example:

If a partner earns employment income (T4) and the new partnership incurs early losses, those losses can be deducted from personal income, providing a valuable tax benefit.

5. Lower Long-Term Administrative Costs

While setting up an LLP may involve drafting a partnership agreement and incurring early legal costs, ongoing expenses are lower because:

There are no annual corporate filings
Fewer ongoing reporting obligations
Lower compliance requirements

Is an LLP Right for Every Business?

Not necessarily. LLPs are not available to all business owners in Ontario. Only professionals such as accountants, lawyers, doctors, and certain regulated practitioners qualify.

For general partnerships that do not qualify as LLPs:

Partners remain fully exposed to business liabilities.
Each partner can be held responsible for the debts and obligations of the business.

Because liability risk and tax strategy vary widely by profession and circumstances, it is essential to seek legal advice before choosing your structure.

Structure

An LLP can offer protection, flexibility, and tax advantages—but only if it is the right fit for your profession and long-term plans.

At Kalfa Law we help business owners, professionals, and partnerships in Ontario evaluate their options and choose the structure that best protects their interests.

Have Questions About Partnership Structures or Incorporation?

Contact Kalfa Law Firm for guidance. Our team of corporate, business, and tax lawyers can help you:

Understand partnership and corporate structures
Register or restructure your business
Reduce risk and protect your assets
Ensure compliance with regulatory requirements

We’re here to support your business success from the foundation up.

FAQs

What is a Limited Liability Partnership in Ontario?

A Limited Liability Partnership (LLP) is a business structure that limits a partner’s personal liability for the negligence, errors, or malpractice of another partner or employee. In Ontario, LLPs are generally reserved for regulated professions such as lawyers, accountants, and other licensed practitioners.

How is an LLP different from a general partnership?

In a general partnership, partners share liability for the actions and debts of the business. In an LLP, each partner is only responsible for their own professional actions, not those of other partners. However, the LLP itself remains liable for claims against the firm.

Who can register an LLP in Ontario?

Only regulated professionals governed by legislation—such as lawyers, doctors, midwives, and accountants—can operate as an LLP in Ontario. General business owners without a professional designation usually cannot register this structure.

How do I register a Limited Liability Partnership in Ontario?

To register an LLP in Ontario, you must:

Complete Form 6 from the Ministry of Government Services.
Submit it to obtain a Business Identification Number (BIN).
Register the LLP name, ensuring it ends with “LLP,” “L.L.P.,” or “Limited Liability Partnership.” Registrations must be renewed every five years.

Do LLPs pay income tax in Canada?

No. LLPs are pass-through tax entities. The partnership does not pay income tax. Instead, profits or losses flow through to the partners, who report them on their personal tax returns.

What are the advantages of operating through an LLP?

LLPs offer:

Limited personal liability
Flexible management and structure
Pass-through taxation
Excellent tax planning opportunities
Lower long-term administrative costs compared to corporations

Are partners personally liable in an LLP?

Partners are not personally liable for the negligence or malpractice of other partners, but they remain liable for their own actions. The assets of the LLP itself can still be at risk, and the firm may still be liable for claims.

Is an LLP the best structure for my business?

It depends on your profession, tax goals, and risk exposure. LLPs are ideal for regulated professionals who want liability protection without incorporating. Business owners should consult a corporate or tax lawyer to determine whether an LLP, corporation, or other structure is best aligned with their goals.

Can an LLP lose its liability protection?

Yes. Liability protection may not apply if:

A partner personally commits negligence or misconduct
Registration rules are not followed
The partnership fails to meet regulatory standards Proper legal guidance helps ensure compliance.

Should I consult a lawyer before forming an LLP?

Yes. Business structure decisions impact tax obligations, liability exposure, and regulatory compliance. A business or corporate lawyer can help you choose the structure that best protects your interests.

-Shira Kalfa, BA, JD, Partner and Founder

Shira Kalfa is the founding partner of Kalfa Law Firm. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax Foundation, Women’s Law Association of Ontario, and the Toronto Jewish Law Society.

The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.