Types of Ontario Partnerships
General Partnership
Partnerships Act, R.S.O. 1990
Liability
Unlimited personal liability for all partners
Management
All partners can participate in management
Registration
Business Names Act declaration if using firm name
Taxation
Flow-through: each partner reports their share of income
Best for
Professional firms, small business ventures, joint ventures
Limited Partnership
Limited Partnerships Act, R.S.O. 1990
Liability
General partners: unlimited; Limited partners: capped at capital contribution
Management
Only general partners can manage (limited partners must not)
Registration
Declaration of LP filed with Ontario Business Registry
Taxation
Flow-through: same as general partnership
Best for
Investment funds, real estate ventures, private equity structures
Limited Liability Partnership (LLP)
Partnerships Act (professional amendments)
Liability
Partners not personally liable for negligence of other partners
Management
All partners can participate
Registration
Must include LLP in name; professional body registration
Taxation
Flow-through
Best for
Law firms, accounting firms, and other regulated professionals
Default Rules Under the Partnerships Act
When there is no written partnership agreement (or when the agreement is silent on a point), the Ontario Partnerships Act implies default terms. These defaults are often not what the partners intend:
Equal profit sharing
Partners share profits and losses equally regardless of capital contributed or work done
No salary for management
A partner managing the business is not entitled to remuneration beyond their profit share
All partners can bind the firm
Any partner can enter contracts that bind all other partners — even without authority
Unanimous consent for changes
The nature of partnership business cannot change without all partners' consent
Partner retirement dissolves partnership
At common law, a partner can retire with notice, which dissolves the partnership — often not what parties intend
10 Key Provisions in Every Partnership Agreement
1. Partnership name and registered office
The official name of the partnership and its principal place of business in Ontario. Must comply with Business Names Act if not using all partners' surnames.
2. Capital contributions
How much each partner contributes, when, and in what form (cash, property, services). Whether future capital calls are permitted and on what terms.
3. Profit and loss sharing
The default under the Partnerships Act is equal sharing. Most agreements override this to reflect capital contributions or different partner roles.
4. Partner duties
Fiduciary duties, non-competition obligations during the partnership, time commitment requirements, and restrictions on outside business activities.
5. Decision-making and management
Voting rights (by head or by interest), quorum requirements, decisions requiring unanimous vs majority approval, appointment of managing partner.
6. Admission of new partners
Process for admitting new partners — approval required, new agreement required? What interest do new partners acquire and at what price?
7. Transfer of partnership interest
Can a partner assign their economic interest? Transfer of full partnership interest typically requires partner consent. Right of first refusal provisions are common.
8. Withdrawal and retirement
Notice period, valuation of the withdrawing partner's interest, payment terms, and non-solicitation obligations post-departure.
9. Dissolution triggers
What events trigger dissolution: partner death, incapacity, bankruptcy, agreement of all partners. Does death of one partner dissolve the partnership or does the business continue?
10. Dispute resolution
Mediation and arbitration provisions. Buy-sell (shotgun) clauses for impasse situations. Governing law (Ontario) and jurisdiction.
Partnership vs Corporation: Which to Choose
| Factor | Partnership | Corporation |
|---|---|---|
| Personal liability | Unlimited (general partners) | Limited to investment |
| Tax treatment | Flow-through — partners pay personally | Corporate rates + dividend or salary to shareholders |
| Small business deduction | Not available | Available (15% federal rate on first $500K active income) |
| Capital gains exemption | Not applicable | LCGE on qualifying small business corporation shares |
| Setup cost | Lower ($500–$2,000) | Higher ($1,500–$5,000+) |
| Ongoing maintenance | Simpler | Annual returns, resolutions, minute book |
| Regulated professions | Often required (law, accounting) | Restricted or prohibited |
Frequently Asked Questions
Is a written partnership agreement required in Ontario?
No. A partnership can exist in Ontario without a written agreement — the Partnerships Act, R.S.O. 1990 implies default terms when partners have not agreed otherwise. However, a written partnership agreement is strongly recommended because the default rules are often unsuitable for a functioning business. For example, without an agreement, all partners share profits equally regardless of their contribution.
What is the difference between a general partnership and a limited partnership in Ontario?
In a general partnership, all partners have unlimited personal liability for partnership debts and obligations. In a limited partnership (LP), general partners have unlimited liability while limited partners have liability only up to their capital contribution — provided they do not take part in the management of the business. LPs are commonly used for investment funds and real estate ventures.
Do Ontario partnerships need to register with the government?
General partnerships carrying on business under a firm name that does not consist solely of the partners' surnames must register a Declaration of Partnership under the Business Names Act. Limited partnerships must file a Declaration of Limited Partnership with the Ontario Business Registry. Failure to register does not affect the partnership's validity but can restrict access to courts.
Should we incorporate instead of forming a partnership?
Incorporation provides limited liability protection that general partnerships do not. For most business ventures where the owners want liability protection, a corporation (OBCA or CBCA) is preferable to a general partnership. Partnerships are commonly used for professional firms (lawyers, accountants, physicians) where regulatory rules limit corporate structures, or for investment vehicles where flow-through tax treatment is desired.
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