When two or more persons, whether individuals or corporations, carry on business together with a view to profit, the relationship is called a partnership. A partnership is like a sole proprietorship in that the partners carry on the business themselves directly. The partnership is not a legal entity separate from its partners. There are two forms of partnerships - general partnerships and limited partnerships. A general partnership (normally just called a partnership) is an unincorporated business entity that is formed when two or more persons join together to carry on business with a view to profit. No formal agreement is necessary to create a general partnership. The only formal registration required is a registration of the name of a partnership under the Business Names Act. Thus, if two or more people conduct a business, under normal circumstances a general partnership will result by default. Each partner is liable with the other partners for all debts and obligations of the firm incurred while a partner. The cost to create and run a general partnership depends on the complexity of the partnership arrangement. A general partnership is not a separate taxable entity. Consequently, the taxation of a general partnership is comparable to a sole proprietorship as the profits and losses "pass-through" to the general partners. Income allocated to the partners is subject to the personal taxation.
A general partnership is very flexible in that the management responsibilities can be divided among the partners in virtually any way the partners agree. In the absence of a specific agreement, each partner has an equal right to control of the partnership. Partners may assign their financial interest in the partnership, but the assignee may become a member of the partnership only if all of the members consent. Finally, unless specific provisions are made in the partnership agreement, the death, bankruptcy, or withdrawal of a partner dissolves the general partnership.
Each partner of a general partnership is liable with the other partners to the full extent of his or her personal assets for all debts and obligations incurred while a partner. In the case of tortiuous liability, a partnership is liable, and each partner is jointly and severally liable, to the same extent as the wrongdoing partner for any penalty, loss or injury caused to a non-partner by an act or omission of a partner. A partner is not liable to the creditors of a partnership for anything done before he or she became a partner. A retired partner remains liable for partnership debts or obligations incurred before retirement.
In contrast to the informal creation of a general partnership, which is formed whenever persons or entities carry on business in common with a view to profit, a limited partnership is created by complying with the relevant provisions of the Limited Partnerships Act. A limited partnership is established by filing a declaration of a limited partnership with the Registrar of Partnerships. A declaration expires every five years but may be renewed by filing a new declaration before the expiry date. The limited partnership is a creation of a provincial statute, and the members of the limited partnership must strictly comply with the provincial laws. A limited partnership must have at least one general partner and one limited partner. While general partners have unlimited personal liability for the partnership's obligations, a limited partner must be basically a passive investor rather than an active participant in the operation of the limited partnership and to have limited liability. The costs of creating and managing a limited partnership will typically be more expensive than a general partnership.
Each general partner has an equal right to control of the partnership, whereas limited partners have no right to participate in control. Partners may assign their financial interest in the partnership, but the assignee may become a limited partner only if all of the members consent. Unless otherwise agreed, a limited partnership must dissolve if a general partner dies, goes bankrupt, or withdraws. The limited partnership will survive the death, bankruptcy, or withdrawal of a limited partner. As in the case of a general partnership, a limited partnership is not a separate taxable entity, the income or loss of the business carried on by the partnership is determined on by the partnership and then allocated to the partners. Limited partnerships are frequently used to raise capital and to bring together passive investors with managerial talent. Usually the general partner of the limited partnership is a corporation.