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Are you looking to create a partnership? We are well versed in structuring and advising our clients on the best approach they can take when setting up their company.

We will walk you through the business partnership options available to you and advise on what the terms of the partnership mean in plain English.

What is a Business Partnership?

A business partnership is when 2 or more people or corporations join together to start a new business.

Business partnerships are typically formed to conduct ongoing, long-term business rather than a single project or venture. They can exist in many different forms from a 2-person partnership to mid-sized and large firms.

Unlike a corporation, a partnership is not a separate legal entity. A partnership is a less-formal business structure that’s easier to form than a corporation, for example. Alberta business partnerships are regulated by the Alberta Partnership Act.

Other benefits of a business partnership include:

  • Lower Tax Burden. In a partnership, income is only taxed once. Unlike a corporation where both the corporate income and shareholder dividends are taxed, in a partnership, only partnership income is taxed.
  • Easier Access to Loans. Whereas a new or a smaller corporation with few assets might find it difficult to secure a business loan, partnerships could have an advantage. Since partners are personally liable for any loans made to the partnership, this business structure offers more to a lender in collateral. Since lenders are considering the borrower’s ability to repay the loan, partnerships can sometimes have an advantage when taking out loans from a bank or financial institution.
  • Flexible Business Structure. Depending on the needs of your business, you can easily change the terms of the partnership by for example expanding and limiting liability and management authority.

Despite the benefits, a business partnership can also be a risky way to structure a business. Without the right legal protections in place, you take on the legal and financial risk for your own and your business partners’ actions.

Without a thorough partnership agreement in place, there is also a risk of legal issues down the line. If a partnership dispute should occur, a well-drafted agreement includes provisions about how dispute resolution should occur and gives a clear guide to the rules and structure of the partnership. If one of the partners suddenly passes away, without through a partnership agreement in place, the partnership automatically dissolves.

Just like any other business, it is essential for long-term success that the business structure is set up correctly. A partnership lawyer can help advise you on the best way to structure your business or partnership, including drafting and negotiating a sound partnership agreement.

What is a Partnership Agreement?

A business partnership is simple to form, and a verbal agreement is enough to start doing business together. However, most business partnerships have a partnership agreement in place. A partnership agreement is a specific form of partnership contract between you and your business partner(s) and outlines the rights and responsibilities of the partners, terms of the partnership, ownership of the business, and set up terms for ending the partnerships.

Drafting a partnership agreement is a crucial step in setting up a partnership. Although an agreement isn’t required, and it may not seem necessary to draft a formal agreement if your partner is a good friend or someone you trust, it is a good idea to have an agreement in place to protect the long-term health of your business. A partnership agreement can also prevent confusion, disputes, and legal problems for the partnership.

It can be very beneficial for the business relationship of the partners to agree on a number of rules before entering into a partnership. The agreement could outline who is responsible for specific areas of the business, what business decisions require consent from other partners, and how the partnership can be dissolved or ownership transferred.

A partnership agreement is a legally binding contract and can make it much easier to resolve a partnership dispute.

While every partnership is different, a typical partnership agreement includes the following elements.

  • Ownership. The ownership allocation or the percentage of ownership each partner has in the business is an important term in the agreement.
  • Capital contributions. This term sets out how much each partner will pay into the company initially. It could also establish who is responsible for making additional capital contributions later and under what circumstances.
  • Division of profit and loss. Depending on the ownership structure or management duties of the partnership, the partners may choose to divide profits or losses equally or in another way. The agreement should also establish when profit can be distributed to partners, and whether any of the partners earn a salary.
  • Authority. It’s important to define in the agreement what limits to authority and decision-making exist in the partnership. For example, whether major decisions need consent from all partners, and how consent must be obtained.
  • Management. A partnership agreement could also include an outline of the duties each or some of the partners are responsible for, and whether there is a managing partner.
  • Length of partnership. Often, partnerships continue operating for an unspecified time, but sometimes partnerships are designed to dissolve after a number of years or at a specific milestone.
  • Addition of partners. This part of the agreement outlines how new partners can be added to the partnership.
  • Death, disability, or dissolution. Another key part of the agreement is details about what happens to the partnership if a partner passes away, is disabled, or wants to leave the partnership. This section should also include when and how the business is dissolved.
  • Resolving disputes. THow are partnership disputes settled? Having an agreed-upon method for resolving disputes such as a mediation clause is a good way to prevent disagreements or conflicts from ending up in court.

Although the process of creating a thorough, formal partnership agreement may seem daunting, it can help you get your business off to a good start. Drafting the agreement can help you consider aspects of running the business and manage expectations about potential issues before they occur. A partnership lawyer can help you and your partners draft a partnership agreement that meets the specific needs of your business.

Types of Partnerships

There are three types of business partnerships: general partnerships, limited partnerships, and limited liability partnerships. Each type of partnership serves a distinct purpose and has different benefits and drawbacks.

General Partnership

All partners share in the profits, risks, and debts of the business. In this type of partnership, all partners have unlimited personal liability for all debt and business obligations. In a general partnership, one or more of the partners can be sued, and it is up to the partners to decide among themselves how to share responsibility for the claim.

Benefits:

  • Flexibility for partners to structure management and economic relationships in the way they want.
  • Easy and affordable to establish.

    • Drawbacks:

  • High personal risk and liability.
  • A flat organizational structure that relies on trust between partners.

Limited Partnership

In a limited partnership, there is at least one general partner and at least one limited partner. A general partner has an active role in the day-to-day operation of the business. A limited partner is essentially an investor who provides capital contributions to the business but does not play an active role in running the business. While the general partner is liable for debts and other business obligations, a limited partner is only liable for the capital they have invested in the business.

Benefits:

  • Easy and affordable to establish.
  • Protects the limited partner from liabilities such as losses and legal action, making it less risky for limited partners to contribute with capital and enter into the partnership.

    • Drawbacks:

  • High personal risk and liability for the general partner.
  • The partnership ends if one of the partners dies unless there is a partnership agreement in place with a provision about the death of a partner.

Limited Liability Partnership (LLP)

A limited liability partnership is available as a partnership structure for eligible high-risk professions such as accountants or lawyers. The partnership can be formed by individual practitioners or professional corporations.

In an LLP, the partners have liability protection. That means a partner in the LLP is normally not liable for the negligence, malpractice, misconduct, or other wrongdoings by other partners, employees, or other agents associated with the partnership. However, an LLP partner is still not protected against contractual claims against the business.

Benefits:

  • Minimizes personal liability structure while maintaining the benefits of a partnership structure.
  • An advantageous business structure if the business carries a substantial amount of uninsurable risk.
  • Flexible management and investor structure.

    • Drawbacks:

  • Like other partnerships, the partnership ends if one of the partners dies. The partners can mitigate this risk by drafting a partnership agreement with a provision about the death of a partner
  • A flat organizational structure that relies on trust between partners (or a well-drafted partnership agreement).
  • Maintains liability in financial matters such as partnership debt and capital. in place with a provision about the death of a partner.

What are Banking and Financial Legal Services?

Financing is at the core of every business activity. Banking, lending, and financial transactions are among some of the riskiest and most complex legal areas in business due to the many players involved.

Timing is often crucial in financial transactions. Since delays or legal issues can be detrimental to a business opportunity, a law firm that is knowledgeable about banking and financial matters can support your business in making the right financial decisions at the right time.

There are many advantages to seeking legal advice for financial business matters, including:

  • Securing and negotiating advantageous commercial loans for your business
  • Help transactions close efficiently and without legal issues.
  • Respond to and resolve financial crises
  • Managing and structuring debt

Partnership Registration Process

In Alberta, you are required to register the business name of your partnership. By registering your partnership’s business name, you don’t get ownership of the name, but the registration is proof that you operate a business under the chosen name.

Unlike a corporation and LLPs, there is no requirement that general partnership and limited partnership names should be unique. While several businesses can operate under the same name, you may want to choose a name that’s unique to your business. You can order a name search to ensure there are no other businesses with the same or similar names to eliminate trademark and other legal issues.

Here are the steps to register your partnership.

  • 1. Choose a name. There are few restrictions on partnership business names in Alberta, but you should still pick a name carefully. Ideally, your business name is unique and should refer to the appropriate business structure. If you are registering a limited liability partnership, the name must include that or the abbreviation LLP at the end of the name. You cannot include references to other business structures such as incorporated, corporation, or limited at the end of your business name.
  • 2. Get a business name report (optional). Although not required, getting a NUANS name search can help you identify whether there are existing businesses or trademark names that are identical or similar to your proposed business name. Selecting a unique business name can help you steer clear of lawsuits and other legal issues.
  • 3. Complete partnership documents. To To register a general partnership, you need to complete a Declaration of Partnership, or similar forms for limited partnerships (LP) or limited liability partnerships (LLP). You also have the option to register your LP or LPP in Saskatchewan and BC at the same time.
  • 4. File your registration and pay fees. You can file your partnership registration at an Alberta corporate registry. The registry will charge a government fee and a service fee to register your business name.

A partnership lawyer can help you prepare all the needed legal documents to start up and register your partnership. That way, you make sure you start off your new business without any errors that may cause delays or legal issues later on. A lawyer can also ensure the business structure, partnership structure, and registration matches your business goals now and in the future.

Our Business Partnership Legal Services

If you are starting a business, or you are thinking of entering into a partnership with your existing business, Navigator Law can help with all aspects of business partnerships.

Our partnership lawyers offer legal advice that helps you understand the legal obligations and risks of a business partnership. We can also advise you on the different partnership and corporate structure options available, and help you set up your business in the most beneficial way possible. With Navigator Law by your side, you can start a new business with peace of mind, knowing that you’re entering into a partnership you fully understand.

Our experienced business lawyers can help with a number of legal services for business partnerships, including:

  • determine what business structure is right for you
  • draft, review, negotiate and amend partnership agreements
  • assist with registering your business partnership
  • support with ongoing legal services to your business partnership
  • resolve partnership disputes and other business dispute resolution

Our law firm offers an all-encompassing service for our business clients, and we will help your business navigate all legal requirements and risks throughout the life of your partnership. Our knowledgeable lawyers can draw from their experience in other legal practice areas such as tax law, real estate law, and family law to consider all aspects and implications of your business partnership.

The team at Navigator Law will always help protect your business interests and support the success of your business.

Contact Us

At Navigator Law, our knowledgeable partnership lawyers can help you with all aspects of starting and running a business partnership. Contact us today to make an appointment or find out more about our business law services.

Frequently Asked Questions

Is there a limit on the number of partners in a business partnership?

No, a business partnership can have an unlimited number of partners, although it may become complex to manage! A general partnership must include a minimum of two partners, and a limited partnership must include at least one general partner and one limited partner.

Do I need a NUANS search to register the name of my partnership?

In Alberta and Ontario, a NUANS report is not required to register the name of a business partnership. The purpose of a NUANS search is to identify whether there are other businesses with the same or a similar name. It may still be beneficial to do a name search on the proposed business name. Choosing a unique business name to prevent any confusion, trademark issues, or other legal problems.

Can companies be part of a business partnership?

Yes. Just like individuals can enter into a business partnership, companies can as well. Since a corporation is considered a separate legal entity with many of the same rights and responsibilities as a person, two or more corporations can form a business partnership together.

How much does it cost to register a business partnership?

The government fee to register a partnership in Alberta is $60. There may be additional registry service fees and legal fees in addition to the registration fee, depending on how you go about registering your partnership.

Does a partnership have to be 50/50?

No, not all partners in a business partnership have to contribute with the same amount of capital and own the same amount. According to the Alberta Partnership Act, the partners can arrange among themselves how profits are shared, but the losses must be shared equally.

How do I structure a small business partnership?

One of the main benefits of a business partnership is that it allows partners to structure it the way they think works best. It’s always a good idea to ensure you and your partner are on the same page about structuring and running the partnership. You and your partner can protect yourself against future conflicts or disputes by drafting a partnership agreement.

Do I need a partnership agreement?

There is no requirement for a business partnership to have a formal partnership agreement in place. However, it is a very good idea to have a partnership lawyer draft one when you form a partnership. A partnership agreement with pre-agreed rules and agreements about managing your business can save you and your partner(s) from confusion and conflicts in the long run.