Partnership Agreements Ontario

Partnership Agreements Ontario

Avoid conflict and disagreements as business partners by registering a solid, lawyer-approved partnership agreement.

It is a mistake to get into a business with a partner(s) without a solid, written partnership agreement. The agreement establishes important rules about how the partnership will operate, including:

  • who the partners are, what role each partner will play,
  • how much capital each partner will contribute,
  • how profits and losses will be split between partners.
Even though the law does not make it mandatory to have a partnership agreement in place when two or more legal entities come together in business, it benefits you to have one in place. Without a solid partnership drawn with the help of a business lawyer, the potential for disagreements is high.
Again whether or not you have a partnership agreement in place, the law will assume that you have entered into one if your conduct as partners and available business accounts and documents meets the indicators of a partnership agreement under the Ontario’s Partnership Act.
The implication of an implied partnership agreement is that all profits, losses, and liabilities of the business are shared equally between partners. Again the potential for prejudice to partners is high if an ownership dispute ever made it to court.
If you are combining your knowledge, capital, or other resources with one or more legal entities with the intention of making a profit, that is technically a business partnership. A legal entity can be a person or a trust, or a registered business.
Drafting a partnership agreement with the help of a business lawyer ensures that the agreement is sound at law and that each partner’s role and responsibilities in the business partnership are clearly defined.
As every partnership is unique in what different partners are bringing to the business, the default rules that govern partnerships under the law do not always apply. Where they don’t, they can only be amended by a written agreement, which is why you absolutely must have one prepared by a lawyer who understands business law.

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    Liability In Business Partnerships Is Shared Equally Between Partners

    What partners bring into a business partnership shouldn’t always be in the form of money. It can be in the form of knowledge, equipment, skills, or labor. It is the partnership agreement that establishes how much share of the business’ stake, profits, and losses that contribution translates to. Importantly, it is the partnership agreement that must explicitly establish how much liability a partner is assuming by coming into the business partnership. Without a clear definition of how liability will be shared, any decision taken by a partner on behalf of the business binds all partners. The law assumes that liability is shared equally and severally. Your partnership agreement will help define what type of decisions individual partners can take on behalf of the business. It will define where liability will fall if a partner proceeded to make an important decision without the consent of the other partners. Where the nature of your partnership assigns limited liability to one of the partners, a good business lawyer will advise you to register a limited liability partnership instead of a general partnership. Just as importantly, your partnership agreement sets the rules on how the partnership will be dissolved and what share of assets, profits, and debts will accrue to each partner. To avoid conflict as partners, get a lawyer to prepare a partnership agreement before you start operations.

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