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Partnership Agreement

Last revision Last revision 04/03/2024
Formats FormatsWord and PDF
Size Size11 to 16 pages
4.5 - 52 votes
Fill out the template

Last revisionLast revision: 04/03/2024

FormatsAvailable formats: Word and PDF

SizeSize: 11 to 16 pages

Rating: 4.5 - 52 votes

Fill out the template

What is a Partnership Agreement?

A Partnership Agreement is a contract between two or more individuals, corporations, trusts, or partnerships (the partners) that join together to carry on a trade or business. In most partnerships, each partner contributes money, labour, property, or skills to the partnership. In return, each partner is entitled to a share of the profits or losses of the business. The business profits (or losses) are usually divided among the partners based on the partnership agreement.

What are the different types of Partnership Agreements?

There are three different types of partnerships:

  • general partnerships: this is the most common type of partnership. Each partner is an agent of the partnership and the other partners. Each partner is jointly liable to the partnership to the extent of their personal property for all its debts and obligations.
  • limited partnerships: in a limited partnership, there's a general partner and limited partners who invest in the partnership. The liability of limited partners is limited to the amount of money invested. Depending on the jurisdiction, a declaration of the limited partnership may need to be filed with the government.
  • limited liability partnerships: this type of partnership may only be entered into by professionals who are governed by specific legislation. For example, lawyers and accountants.

What is the most common type of Partnership Agreement?

A general partnership is the most common type of partnership, with all partners having equal rights and responsibilities. Limited partnerships usually are only used as investment vehicles, and the limited partners cannot take an active role in the business. Otherwise, they become general partners. A limited liability partnership is only allowed for certain professions. Therefore, the most common partnership is a general partnership.

Is it mandatory to have a Partnership Agreement?

Yes. An agreement is necessary, but it may be oral. In other words, a written agreement is not mandatory, but it is recommended. Having a written agreement in place allows the partners to specifically address the control of the business, management, profit sharing, and more.

Partnerships can be created by formal contracts, such as this Partnership Agreement. But even where no formal contract exists, the courts may find a partnership based on the characteristics of the relationship among the parties.

When no partnership contract is in writing and the partnership breaks down, the courts will decide the terms of the partnership which may not be what the parties intended.

Having an agreement in place ensures that the terms of the partnership agreement are what the partners intend them to be.

What should a Partnership Agreement contain?

A Partnership Agreement should describe the partners' responsibilities, outline the ownership interest in the Partnership, outline each partner's profit and loss distribution, prepare the Partnership for common business scenarios, and include other important rules about how the Partnership will be managed. Also, the agreement should contain clauses on:

  • The amount of capital contributed is the amount of money or property a partner will contribute. Each partner may contribute a sum of money, for example, $10,000.00. Alternatively, partners can contribute property, such as real estate or tools and equipment. The partners then track these contributions, which helps determine a partner's proportionate share of rights and allocation of profit and loss.
  • The draws by each partner: this is the rules on when and how a partner can withdraw money from the partnership.
  • The payment of taxes: this is the rules on tax responsibility and the allocation amount payable by each partner.
  • Decision-making: this outlines who will be the decision-maker and the rules on voting rights.
  • Dispute resolution: this the rule governing how issues are handled between partners.
  • Dissolution provision: this is the rule on an exit strategy by the partners if they no longer want to be in partnership.

Who can enter into a Partnership Agreement?

A minimum of two people must sign this agreement. The following may enter into a Partnership Agreement:

  • An individual: an individual may enter into a partnership agreement in their personal capacity.
  • A trust: a trust which is a legal relationship may enter into a partnership agreement.
  • A corporation can enter into a partnership agreement. The partnership can be between multiple corporations or individuals and corporations.
  • Other entities including associations and cooperatives.

The above can enter into a partnership agreement if there is an intention to conduct business with a view to profit. It's important to note that the signatories to the agreement must be at least majority age.

What has to be done once a Partnership Agreement is ready?

Once a partnership agreement is ready, the partners must either meet in person to sign the document or they may circulate the agreement by way of email to electronically sign. A copy of the signed agreement must then be securely stored and uploaded to a personal computer. The partners will also need to fill out the required government form to register the partnership with the province or territory.

Is it necessary to register a Partnership Agreement?

In every Province and Territory, some form of government registration is needed. It may be necessary for a partnership to register with the government by filing a registration or a declaration. These are usually prescribed forms and must include:

  • the firm name;
  • the general nature of the business activities;
  • the full name and address of the general partners;
  • the official address of the firm;
  • the official email of the firm.

The declaration can be found on the provincial government website. If a partnership uses a trade name, the name must be registered with the government.

Which laws are applicable to a Partnership Agreement?

Partnerships are subject to provincial or territorial laws and common law. There are different types of partnerships which are subject to different laws. The following pieces of legislation apply to partnerships:

  • Ontario: Partnerships Act (R.S.O. 1990, c. P.5) and the Limited Partnerships Act (R.S.O. 1990, c L.16)
  • Alberta: Partnership Act (RSA 2000, c P-3)
  • British Columbia: Partnership Act (RSBC 1996, c 348)
  • Manitoba: The Partnerships Act (CCSM c P130)
  • New Brunswick: Partnership Act (RSNB 2014, c. 141) and the Limited Partnership Act, RSNB 1952, c 134
  • Newfoundland and Labrador: Partnership Act, RSNL 1990, c P-3 and the Limited Partnership Act, RSNL 1990, c L-17
  • Nunavut: Partnership Act, RSNS 1989, c 334
  • Prince Edward Island: Partnership Act, RSPEI 1988, c P-1 and the Limited Partnerships Act, RSPEI 1988, c L-13
  • Quebec: Act respecting the legal publicity of enterprises, CQLR c P-44.1
  • Saskatchewan: The Partnership Act, RSS 1978, c P-3
  • Northwest Territories: Partnerships and Business Names Act (R.S.N.W.T. 1988, c.P-1)
  • Nunavut: Partnership Act, RSNWT (Nu) 1988, c P-1
  • Yukon: Partnership and Business Names Act (RSY 2002, c 170)

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