A partnership is a relation in which two or more persons carrying on a business in common for the purpose of making a profit. Partnerships have at least the following important features.
- A partnership can be created by an agreement reached or it can be created by behaviors if the individual partners are simply acting in a way like a partnership;
- The one partner may have to be responsible for the behaviors of and business debts incurred by the other partners;
- Partners individually and personally own the assets of the business, i.e. partnership is not a legal entity separated from its partners;
- There are two main types of partnerships: general partnerships and limited partnership;
- Partners are not employees of the partnership, thus, partners are not paid in a way of a salary and they are not eligible for employment insurance if the business fails, they have no income;
- All partnership must be registered with the government with all partners' names and personal information. The registration must be renewed every five years.
All partners are responsible for the management of the partnership business and each is personally liable for all the debts and obligations of the partnership business. This means that each partner is responsible for and must take the consequences of the behaviors of the other partner(s).
Some partners are general partners who control and manage the business and may be entitled to a greater share of the profits, while other partners are limited in control and management of the business, and contribute only capital and are liable for debts to an agreed extent. A limited partnership agreement must be drawn up to set out specific requirements.
In simple words, for general partnership all the partners share the profits and losses of the business; and for limited partnerships, where the limited partners are not involved in the daily operations and are only responsible for losses up to the amount they invested to the business.
In order to establish the terms of the business and to protect partners in the event of disagreement or dissolution of the business, a partnership agreement should be drawn up for all partnership, usually with the assistance of a lawyer. Partners have different shares in the business profits agreed by all partners, so sometime, the partner is called shareholder and partnership agreement is called shareholder agreement for partnership.
The registration process of partnership in Ontario is similar to that of a sole-proprietorship.