doing business in canada - Davies Ward Phillips & Vineberg LLP

partnership, limited partners’ liability is limited to their investment in the partnership, but they must remainpassive investors and not participate in control of the partnership business. Ontario and Québec also permitprofessionals to practise through a special type of general partnership known as a limited liability partnership,which provides individual partners with a degree of protection against unlimited liability for the negligent acts ofother partners.In Ontario, the governing statutes are the Partnerships Act and the Limited Partnerships Act, which define therights and obligations of the partners between themselves and in relation to third parties. Partnership law alsoincludes non-statutory common law and equitable principles.In Québec, partnerships are governed by the Civil Code of Québec, which similarly sets out the rights andobligations of partners between themselves and towards third persons, as well as conditions for the creation,operation and dissolution of a partnership.The provisions of these statutes that address the rights and obligations of partners between themselves cangenerally be altered by agreement between the partners. Because the relationships between the partners canbe determined by agreement, great flexibility is possible in providing for such matters as capital contributions orother financing of the partnership, participation in profits and management structure.Income and losses of a partnership, although computed at the partnership level, are taxed in the hands of thepartners. This tax treatment is the primary reason for using a partnership rather than a corporation, since eachpartner may offset its eligible share of the partnership’s business tax losses against income from other sources.GENERAL PARTNERSHIPSThe main characteristic of a general partnership is the unlimited liability of each partner for the liabilities andobligations incurred by the partnership to third parties. Each partner may bind the others unless there arerestrictions in the partnership agreement of which third parties have notice. However, a partner is generally notliable for obligations incurred before it became or after it ceased to be a partner.The main disadvantages of a general partnership are the unlimited liability of the partners and the ability ofeach partner to incur partnership obligations that will bind the other partners.In Ontario, all the partners of a general partnership must register the name of the partnership under theBusiness Names Act, unless the business is carried on under the names of the partners. In Québec, a generalpartnership must file a declaration every year under An Act respecting the legal publicity of sole proprietorships,partnerships and legal persons. This declaration must include a French name for the purpose of carrying onbusiness in Québec. In both Ontario and Québec, these registrations require that the partnership business andthe names and addresses of the partners be disclosed.LIMITED PARTNERSHIPSA limited partnership combines the advantages of limited liability and the ability to flow tax losses through topassive investors (subject to certain restrictions under tax legislation). This form of business structure is oftenused for public financing and real estate syndication. A limited partnership is made up of one or more generalpartners, each of whom has the same rights and obligations as a partner in a general partnership, and one ormore limited partners, whose powers and liabilities are limited.The general partner or partners manage the partnership. A limited partner may not take part in themanagement of the partnership without jeopardizing the partner’s limited liability.The primary advantage of a limited partnership over a general partnership is the limited liability of the limitedpartners. This enables passive investors to receive returns proportional to the amount of their contribution withminimal personal risk.Types of Business Organization 21