One definition of a partnership is an affiliation or link that is established between two or more individuals, businesses, trusts, or even other partnerships to engage in commercial or industrial activity. Each partner contributes to the collaboration in some way, whether it be financially, physically, intellectually, or materially. In return for their participation, the partners are entitled to a proportional share of either the company’s profits or losses. Except for altering the nature of the firm, decisions are taken by a majority of the partners; however, this cannot be done without the permission of all of the current partners. It is common practice to employ a partnership agreement to regulate the governing text; however, this is not a requirement. If an agreement cannot be reached, the Act’s default regulations will be implemented.
Features
This corporate entity’s characteristics are as follows:
- A partnership agreement – details the description/activities of the partnership.
- No incorporation.
- Minimum of 2 partners.
- No director is required.
- There is no minimum capital requirement, but the amount of each partner’s capital contribution should be specified in the agreement.
- Not a taxable entity.
- Partners have unlimited liability for a partnership’s debts
- Can be involved in international transactions and restructurings e.g. cross border mergers, asset acquisitions, and equity acquisitions.
- It is not publicly listed.
Unincorporated partnership formation in Canada
The registration process takes place at the Ministry of Government and Consumer Services. Even though it is not required to have one, the partnership agreement is typically considered to be the most important document in an unincorporated business venture. A partnership must be registered to comply with the Business Names Act (Ontario). The cost of registration is $60 Canadian for entries made via the internet and $80 Canadian for submissions made via the postal service. When you register your business name under the Business Names Act, the following information will be made public:
- The partnership’s name
- The partnership’s address
- A succinct rundown of the partnership’s activities
- Name and contact information for up to 10 partners.
Governance
The following, unless the partners agree differently, are the partners’ rights, obligations, and duties as set out by legislation (but subject to an opposite agreement as among themselves solely in the partnership agreement):
Rights:
- the right to an equal share of the partnership’s capital and profits
- the obligation to defend each partner against claims made against it in the course of doing business, and
- the right to interest on loans made to the partnership that goes beyond their capital contributions.
Responsibilities:
- partners are jointly and severally liable for the partnership’s debts and obligations.
Duties:
- to provide accurate accounts and complete information to all partners;
- to account for any benefits he receives from business dealings involving the partnership without the approval of the other partners;
- to disclose any information about the company to the other partners; and
- • refrain from engaging in competition
- Partners owe each other fiduciary obligations in equity (that is a duty of utmost good faith).
Taxes and prices
The Business Names Act stipulates that the corporation must re-register its corporate name at regular intervals of five years. It is important to pay the renewal fees, which are currently set at $80 Canadian for filings made by mail and $60 Canadian for submissions made over the internet. Since the activities of a partnership are seen as having been carried out by the partners, the partnership as a whole is exempt from paying taxes on those activities. When assets are sold, each partner is seen as holding a share in every asset held by the partnership. This means that each partner is subject to paying capital gains tax on the revenues that are assigned to them. Each partner is responsible for paying taxes on their portion of the business’s revenues or losses.
