Setting up a Partnership in Canada

Prabhat Nigam

09 May, 2022

Many people who do not wish to set up a big business and are satisfied with small business but want to take benefits from each other in terms of capital, expertise, know-how etc have the option of setting up a partnership in Canada. This article discusses the process of setting up a partnership in Canada.  

What is the difference between general and limited partnership?  

The Canadian law offers two types of partnerships i.e. general partnership^[1] and limited partnership. In general partnership all the partners share both profit and loss and are personally and jointly liable for the all the liabilities arising from such partnership.

However, in case of Limited Partnership, both general and limited partners exist. The limited partners do not involve themselves in the day-to-day affairs of the business and the extent of their personal liability extends to the amount of capital the limited partner has invested in the business in case the partnership goes into losses. On the other hand the general partner is liable for the day-to-day operations of the business and the extent of his liability is both joint and several.    

What are the steps in setting up a partnership in Canada?  

Following is the step by step process of setting up a partnership in Canada:

1. Selection of the business structure: Before starting a new venture, the prospective business owners need to decide the business structure to carry forward their business. If the owners decide not to incorporate a company for carrying out their business, then in such a case, the most feasible option left with such people is that of partnership. A partnership is a business structure where business is owned by two or more than two partners. Partnership is assumed to be an inexpensive and easy structure to start one’s business.

• Finalising the business name for the partnership: Once the partners have selected the business structure, the next step is finalising the business name for the partnership.

One thing that the partners must keep in mind before finalising the name of the partnership is that the legal identifiers such as ‘Limited, Ltd., Incorporated, Corp, Corporation, Inc.’ should not be added to the name of the partnership since these legal identifiers have been reserved for the incorporated companies only and cannot be used for the purpose of partnership or sole proprietorship.    

• Checking the availability of name: before the registration of a partnership, the owners of the business need to check whether they have a legal right to use such name. This process is done by checking the availability of the business name if a business already exists under such name.  It is always advised for the business owners to keep handy more than one name in case any conflict arises while searching about the name at any stage.  

• Registration of the business name: The next step for setting up a partnership in Canada is to register the name of the business in the province where the business owners wish to operate their business from. Registration of the business name will facilitate the business in opening of the bank account in the name of the company, prevent from getting into conflict with someone else on infringement of business name and help in development of the goodwill of the business.  

• Registration of permits, licenses and taxes: Irrespective of the place of business where the partnership is carrying its business from, be it from a commercial office or home itself, the required business permits and licenses need to be obtained under the applicable federal, provincial and municipal laws along with registration for the applicable taxes. In case the partnership business earns more than revenue of 30,000 Canadian dollars a year, then such a business has to obtain the HST/ GST registration for the purposes of payment of sales tax and to claim input tax credit from the government.   

• Signing of a Partnership Agreement: If the business owners wish to register their business in the form of a partnership, then it is advisable to draft a partnership agreement and thereafter signing the same between the partners.

In the absence of a proper partnership agreement, the applicable partnership Act shall come into force and can make the matters further difficult and expensive in resolving disputes or handling the unexpected termination of the dispute.

It must be noted that having a partnership agreement in case of a general partnership is optional. However, in case of limited partnerships, a partnership agreement is mandatory. 

• Opening of a bank account: For the purpose of opening of a bank account for the partnership business, the partners need to submit the proof of registration of the business name. The authorised signatories of the partnership need to sign on the account at the bank before they will be permitted to sign cheques or access the partnership’s business account.

• Start your business: Now that all the registrations have been done for registration of the partnership business, the concerned partners can start their business. Since the partners have registered themselves to carry on the business, they will be receiving the updates from the government’s end regarding changes in regulations, renewal of registration, changes in the tax rates etc.     

Conclusion 

The abovementioned steps gives the overview of the step-by-step process of establishing a partnership business in Canada and the ease with which a business can be carried out if the partners want to keep the business structure simple and inexpensive. If an option exists choosing between a general partnership and limited partnership, it is always recommended to have a limited partnership as it limits the extent of liability of the partners and save them personal liability.           

Read Our Article: How to Start Small Business in Canada