Partnerships, sole proprietorships, and corporations are the three most prevalent business entities in Ontario.

Let’s see in detail what is a partnership and what you need to know when you are creating one.


What is a Partnership?

A partnership, in legal terms, is a connection between two or more people who run a business jointly with the goal of earning a profit. You will be able to form it for an indefinite period of time or for a specific enterprise or commercial opportunity. Also, unlike a corporation, is not a separate legal entity from its founders.


Types of partnerships in Canada


1. General partnership

This is the most prevalent kind of partnership. A general partnership is a business arrangement involving two or more people who share the company’s earnings and liabilities. As in a sole proprietorship, each member is entirely personally responsible for the partnership’s debts, contractual obligations, and torts. As a general partner, you can be personally liable for anything that occurs in the business.


2. Limited partnerships

Firstly, this is a partnership for one or more general partners with unlimited responsibility and one or more limited partners with limited liability, based on their participation in the partnership. It is sometimes possible to form a limited partnership with two or more people as limited partners and a company as the general partner.

Secondly, a limited partner (known as a “silent partner”) makes a financial contribution and may give advice on occasion. However, most of the time is uninvolved in the business. If a limited partner becomes involved in the day-to-day operations of the business, will lose the limited liability status. As a result, the limited partner will become as responsible as a general partner.

In conclusion, businesses frequently utilize limited partnerships to raise capital since the limited liability attracts more investors.


3. Limited Liability Partnerships (LLP)

As the name indicates, a limited liability partnership provides the partners with greater liability protection than they would have as general partners. If a client feels aggrieved or damaged and decides to sue the partnership, only the assets of the partner who worked with or on that client are in danger. The assets of the other partners would be safeguarded.



Full Protection in Ontario

The Province of Ontario offers full protection. Which shields the partner from any claims brought against the partnership, whether or due to the misconduct of other partners. Partners are still responsible for their own conduct.


GST/HST is required?

Yes! Even though a partnership is treated as a distinct legal entity, it may be required to register for and collect GST/HST if it makes taxable supply in Canada



A partnership may sign contracts and borrow money on its own, alleviating some of the liability risks that a sole proprietorship would face. However, the partnership’s major advantage is the working connection between the partners. The most effective partnerships are ones in which the partners complement each other’s skills and are willing to share decision-making authority.

Partnerships are taxed in the same way that sole proprietorships are. This means that there is no need to submit separate income or pay separate income tax. To put it in another way, if you pick the partnership as a business structure, you’ll still use the T1 income tax form to submit your taxes.



An individual partner may be held responsible for all debts, liabilities, and any unlawful acts committed in the name of the company by another partner.

Unbeknownst to many, dissolving this type of business structure can be difficult. If you would like to make any kind of partnership, you will need a partnership agreement. In theory, you can create a partnership with a handshake, but that is not a good idea because partnerships, like any other kind of relationship, can lead to conflict. This will ensure that your partnership’s day-to-day operations run smoothly and prevent any minor difficulties from becoming full-blown disasters.

The level of personal accountability associated with sole proprietorship and partnership business ownership makes many individuals uneasy. If you relate to this, you should think about incorporating your business.



Contact us today to discuss which type of structure is the best option for your business.

First free consultation.



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