So... what is this? Are we in a Partnership?
What is a partnership?
According to BC’s Partnership Act, a partnership is “the relation which subsists between persons carrying on business in common with a view of profit.” This is a broad definition – meaning you could be in a partnership without even knowing it! Let’s break down the elements.
A “person” can be an individual (or natural person) and their representatives, a corporation, and a partnership or party.
“Carrying on business” is usually interpreted in a straightforward, ordinary way. “Business” typically includes “every trade, occupation and profession”. The Supreme Court of Canada observed that the definition may differ, depending on the context. It could involve buying and selling, trade, operating a commercial firm, and operating a shop. It can also be relatively passive, such as solely receiving rent. There’s no time requirement here, so “carrying on business” includes business that may be formed for a single transaction. The business does not have to be a new business– partnerships can exist to carry on an existing business.
“In common” is where things can get tricky. Some relevant considerations for determining whether a business was carried on “in common” include:
whether the parties held themselves out to third parties as partners;
what each person contributed to a common undertaking, such as skill, knowledge or assets (but one partner being responsible for managing the business does not mean the business is not being carried on in common);
whether there were joint property interests involved;
whether profits and losses were shared;
whether income tax returns were filed as a partnership;
what financial statements state and whether joint bank accounts exist;
correspondence with third parties; and
whether one partner had the authority to bind another.
A “view of profit” is a matter of intention– it simply requires that the partners have profit as an objective. Profit does not have to be the overriding or even the main objective.
You might have heard of terms like limited partnerships and limited liability partnerships. These are all types of partnerships, and these business forms are governed by BC’s Partnership Act. Note, however, that a partnership is not a legal entity (except in some circumstances for interpreting Human Rights Codes). Rather, the partners themselves are personally liable and may be sued in the business’s name.
What isn’t a partnership?
The Partnership Act also clarifies that certain types of relationships aren’t a partnership. For example, members of a company or association formed or incorporated under a piece of legislation are not a partnership. This is because corporations and similar types of companies are governed by other legal instruments, such as the BC Business Corporations Act. That said, while members of a corporation aren’t considered to be in a partnership, the corporation itself could be in a partnership with other persons or corporations.
Sharing a business’s profit with another person or corporation is proof that a partnership exists, unless there is contrary evidence. However, merely receiving a share or payments that vary based on a business’s profitability does not, itself, make someone a partner in a partnership. Joint ownership of property and sharing gross returns do not, of themselves, create a partnership.
But we’ve never signed anything. Are we still partners?
You might be. There are no formal steps to form a partnership– it’s easy for people to enter into a partnership without ever realizing that they are in one.
Partnerships arise out of a contractual relationship, but they don’t require a signed agreement to exist. In fact, an agreement saying that a relationship isn’t a partnership isn’t necessarily determinative. If this is a dispute before a court, the court will look at the overall arrangement between the people involved.
As a partnership, what should we do?
Generally, it’s a good practice to write and sign a partnership agreement that sets out each person’s respective rights and obligations as partners. The Partnership Act sets out the default nature of partnerships– that is, the way the partnership should be governed, unless otherwise specified between the partners or implied from the circumstances.
You must file a registration statement! The Partnership Act also has a mandatory registration requirement. All persons in a partnership must file a registration statement with BC Registries (the Registrar), unless the firm has already been registered through the Partnership Act’s limited partnership or limited liability partnership processes. Partners also have to file an amendment if any information within the registration statement changes.
Just as it’s easy for people to enter a partnership without realizing that they are in one, it’s easy for partnerships to fail to comply with this requirement. That doesn’t preclude the partnership from existing– it just exposes the partners to potential consequences including a fine of up to $2,000, or imprisonment up to six months.
Help! I have more partnership questions!
The University of Victoria’s Business Law Clinic (“BLC”) is here to answer your business law questions! We provide no-cost legal information to individuals, businesses, and nonprofits. The clinic’s services are provided by students, under the supervision of our director, Michael Litchfield, a PhD student and former legal practitioner. Please note that our students are able to provide legal information, but not legal advice. If you require legal advice, please speak to a lawyer.
You can reach out to the BLC by sending a message to blc@uvic.ca or leaving a message at 250-472-4522. For phone messages, please make sure you clearly provide your name, number, and details on your issues or questions.
What is legal information and how is it different from legal advice?
Legal information includes information on law, generally, that relates to your legal issue. You would then take this information, apply it to your situation, and choose your next steps on your own. Legal advice involves an analysis of how the law applies to your particular situation (including, for example, contract interpretation) and counsel on what you should do in your unique circumstances.
The BLC’s clinicians can provide legal information, but not legal advice. We are happy to provide you with detailed information to help you feel more informed and confident about your business matters.