Associations in Canada
A partnership occurs when two or more people decide they are going to work together in a business and file a form called a Partnership Registration and, in some cases, enter into a Partnership Agreement.
There are three types of companies in Canada. A general partnership, a limited partnership, and a limited liability partnership.
A general partnership occurs when all individuals have equal control over the partnership and make decisions together.
A limited partnership occurs when a partner decides to agree to be a partner and, in most cases, provides some funds to the partnership, but does not want to be a part of the day-to-day operations. His input is considered “limited.” A limited partnership can be formed with a general partner and a limited partner.
A limited liability partnership is a partnership in which the partners are not responsible for the debts, obligations or liabilities of the partnership resulting from the actions or negligence of another partner, employee or agent of the partnership. Lawyers and accountants generally form limited liability companies.
There is no limit to the number of partners in any type of partnership. A limited partnership would have to have at least one limited partner and one general partner, however you could have as many of each as you like. A general partnership must have at least two general partners and can have as many general partners as you like, but will not have limited partners.
Corporations are governed by provincial and territorial law and a form usually called Company Registration must be completed and filed with the appropriate provincial or territorial government office. You can register the association yourself by completing the appropriate form and going to your local provincial or territorial government, and in some cases you can register online.
In some provinces and territories, you will be required to provide a Nuans Name Search Report or similar report to register an association. In Ontario this is not required. Regardless, however, you should do a preliminary (usually free) nuans name search to determine if the name is available regardless. It is very important that you make sure that the name you are choosing for your company is not similar or the same as any other name already registered. Even if the name is exactly the same, except for the name ending in the case of a corporation, you still should not use the name. An example of this would be if you registered a company called “Johnson Partners” and a name called “Johnson Partners Ltd” already existed. In some jurisdictions, the government would allow you to do such registration, but it would not be a good idea as it is a conflict between Johnson Partners Ltd and Johnson Partners Ltd. You may not be very happy with your choice and could take it to court in an attempt to change it if It is a company that occupies a prominent position in the market. Your proposed company name should be as distinct and different from all other trade names, partnerships, sole proprietorships, trademarks or companies as possible.
Sometimes two or more companies decide to form a partnership.
The following information is required to register a company:
1) The name of the company
2) The province or territory where the company will be located
3) The business address of the company
4) The postal address of the company (which can be the same)
5) The name and address of each partner
6) The purpose or nature of the company’s business
7) If any partner is a company, the social number of the company.
Associations are easy to form and have low start-up costs. Each partner will bring their own set of skills to the partnership. One partner will have skills in some areas and another in other areas which may result in broader management knowledge and the ability to diversify tasks and responsibilities. More than one point of view can result in more effective decision making.
When a partnership is formed, the partners pool their personal assets and therefore the business partnership may need less financing than a sole proprietorship. It is also easier to borrow from loan proceeds when more than one person is obligated to repay the loan.
There is little government regulation for associations. Formation is simple with a company registration and no annual filings, keeping the cost of forming and maintaining a company low.
In a general partnership, each partner is responsible for all debts and obligations of the partnership, including those incurred by one partner without the knowledge or authorization of other partners. If one of the partners is sued, the other partners in the partnership are equally liable for any financial judgment imposed by a court. Unlike a corporation, which is considered an entity by itself, the partners are personally liable for any debt owed to the partnership. Partners are responsible for each of the other partner’s actions. Each partner is considered to be aware of any information that has been provided to another partner. Therefore, partners must be able to trust each other to disclose all relevant information.
If there is no current partnership agreement, a partnership is dissolved upon the death or withdrawal of any partner or the acceptance of a new partner. A partnership agreement may be entered into with clauses providing that the surviving partners may purchase the interests of the deceased or retiring partner. See below for more information on partnership agreements.
Profits must be shared by all partners equally, unless there is a partnership agreement to provide different percentages for different partners who invest more or less in the partnership.
If a partner, without the consent of the other partners, carries on a business of the same nature and he or she is competing with that of the partnership, the partner must render accounts and pay the firm all profits earned by the partner. in that business
A partnership is a relationship between people who conduct business in common with a view to making a profit, whether or not the partners call their common business a partnership. Evidence of a partnership includes joint ownership, sharing of gross returns, and receipt of a share of the profits. Relationships that were not intended to be partnerships may be considered partnerships later, and therefore you should be careful to clearly define your business relationships.
Limited partners in a limited partnership are not responsible for the acts of the business. If a limited partner can be shown to have taken part in the management of the business, they may be considered a general partner and would lose their liability protection.
Limited partnerships must comply with the regulatory requirements of the Limited Partnership Laws in the province or territory where the limited partnership is formed, and as such must provide certain notices to the government and maintain certain records.
A limited partner does not have any right to participate in management and therefore that person has little control over their investment in the limited partnership.
It is more expensive to register a limited company.
You must have a partnership contract. When a partner decides to leave a partnership, the partnership is automatically dissolved unless a partnership agreement has been signed to the contrary. If the business is viable, the remaining partners may not wish to dissolve the business. Also, in case of disputes, it is a good idea to have some clauses in your partnership agreement to cover possible situations that may arise. If you do not have a current partnership agreement, then the Company Law of the particular province or territory in which the company was formed must be followed and, in most cases, legal remedies are limited. No matter how long you have known the person you decide to partner with, including your spouse, you still need to form a partnership agreement.
Your best bet would be to have a partnership agreement drafted by an attorney, and each party to the agreement should have an independent attorney. This is to ensure that each party is protected from any changes that occur in the partnership, such as a death, resignation, illness, disagreements, etc. and also determine in writing how the financial aspects of the business will be handled. Without a well-drafted partnership agreement, you could expose yourself to a problem down the road that could cost you lost income if you haven’t provided a partnership agreement with the proper provisions. Independent advice is especially important as a lawyer will look at the agreement from his personal point of view and insist on adding clauses to protect him in the future in any number of situations that occur. Law firms operate like partnerships and have a better understanding of the law behind all types of partnerships.
There is no law that says you have to have a lawyer. If you cannot afford a lawyer to draft your partnership agreement, make sure you have read the law for partnerships in your particular province or territory and make sure you have some form of partnership agreement. Also make sure the agreement has provisions for what happens if a partner gets sick, wants to quit, or dies, as well as provides for the proper distribution of profits. Not having a partnership agreement would be a bad choice.