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Thinking About Forming a Partnership?

If two or more individuals, or companies, have decided to go into business together, they may choose a partnership for a variety of reasons.

The organization of a general partnership can be simple and inexpensive. There are very few legal requirements for forming a partnership. It can be formed by conduct, without formality, by persons carrying on business in common with a view to profit. Note that having “a view” to profit does not actually mean that you need to profit, but only that you intend to profit from the enterprise.  As a result, parties may actually be, from a  legal perspective, in a partnership arrangement and yet, at the same time, be unaware that they are, in fact, partners.

Although not mandatory under British Columbia law, it is a good idea for business partners to enter into a formal partnership agreement. In the absence of a written agreement, the Partnership Act (British Columbia) (the “Act“) imposes a statutory system of rights and duties upon partners, which they may wish to vary. For example, under the Act, all partners are entitled to share equally in the management and profits of the business. This may not be the arrangement that the partners want and, pursuant to the Act, they are free to modify it in a written agreement.  In addition, a partnership agreement may be appropriate for other reasons, such as defining management responsibilities and ensuring business continuity in the event of a partner’s departure.

Regarding registration, as of the date of this article, it is necessary to register a partnership in British Columbia if two or more people intend to act as partners for the purposes of trading, manufacturing, or mining. However, even if registration is not required for other types of partnership, it is still prudent business practice to register the partnership in order to enter it into the public record, protect a trade name, open a bank account, etc.  Registration of a partnership is a much simpler process than incorporating a company under the Business Corporations Act (British Columbia).

Regarding taxation, a partnership may provide tax advantages because business losses can be deducted against other personal income. For example, if the owners of the business expect there will be losses in the first years of operation of the business, they may want to use a partnership so that they can apply these losses as individuals against other sources of income.

However, one of the disadvantages in a partnership is the potential liability it imposes upon the partners. Each partner is personally liable for the losses of the business, and may also be liable for the wrongful acts of his or her fellow partners (and employees) if those acts are committed in connection with the partnership business.

Negotiating and drafting a partnership agreement can be a complex undertaking.  Before you enter into a partnership agreement, it is advisable to seek counsel from a business lawyer with experience in such matters.

For more information about general partnerships, or partnership agreements, contact Murphy & Company at (604) 360-7014 or by email at: tmurphy@murphyandcompany.ca

This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on British Columbia law.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation.