MGT 393 - BUSINESS LAW
Class Two – Handout
Note → a business entity and not a “legal” entity
PARTNERSHIP (GENERAL PARTNERSHIP)
WHAT IS A PARTNERSHIP?
• “partnership is the relation which subsists between persons carrying on a business in
common with a view to profit”; (a business entity – not a separate legal entity)
2. Partnership is the relation that subsists between persons carrying on a businein common
with a view to profit, but the relation between the members of a company or association that is
incorporated by or under the authority of any special or general Act in force in Ontario or
elsewhere, or registered as a corporation under any such A ct, is not a partnership within the
meaning of this Act. R.S.O. 1990, c. P.5, s. 2.
• determination of whether or not a partnership exists is critical and will impact legal
• historical perspective;
• persons who have entered into partnership are collectively called a “firm” [s.5]
Meaning of “firm”
5. Persons who have entered into partnership with one another are, for the purposes of this
Act, called collectively a firm, and the name under which their business is carried on is called the
firm name. R.S.O. 1990, c. P.5, s. 5.
• partnership is not a legal person distinct from the part- thus a partner cannot be an
• partnership can be for a single undertaking
• income tax (share of income taxed at the “partner level” – not as a partnership entity)
ELEMENTS OF A PARTNERSHIP
A) (SOME FORM OF) AGREEMENT
• express or implied - not necessary that parties intended to create a
B) COMMON BUSINESS FOR COMMON PROFIT
• community of interest in the benefits accruing from joint activity
C) OTHER PRACTICAL
• partnership is a contractual relationship;
• relationship founded on mutual trust
• partner’s share in partnership property is never real property
• Partnership Act applies (refer to legislation)
LAW THAT APPLIES:
45. The rules of equity and o f common law applicable to partnership continue in force, except
so far as they are inconsistent with the express provisions of this Act. R.S.O. 1990, c. P.5, s. 45.
Page 1 of 6 DETERMINING EXISTENCE OF A PARTNERSHIP (important due to profit/liability aspect)
• determined by real intentions of parties as ascertained by their conduct
(starting point in determining existence);
B) CONSIDER RULES PRESCRIBED BY PARTNERSHIP ACT
• joint tenancy, tenancy in common (etc.) does not itself create a partnership [s.
• sharing of gross returns does not itself create a partnership [s.3 -2];
• receipt by a person of a share of profits of a business is proof, in absence of
evidence to the contrary, that person is a partner in the business - with
exceptions [ s.3-3]
Rules for determining existence of partnership
3. In determining whether a partnership does or does not exist, regard shall be had to the
1. Joint tenancy, tenancy in common, joint property, common property, or part ownership
does not of itself create a partnership as to anything so held or owned, whether the tenants
or owners do or do not share any profits made by the use thereof.
2. The sharing of gross returns does not of itself create a partnership, whether the persons
sharing such returns have or have not a joint or common right or interest in any property
from which or from the use of which the returns are derived.
3. The receipt by a person of a share of the profits of a business is proof, in the absence of
evidence to the contrary, that the person is a partner in the business, but the receipt of
such a share or payment, contingent on or varying with the profits of a business, does not
of itself make him or her a partner in the business, and in particular,
(a) the receipt by a person of a debt or other liquidated amount by instalments or
otherwise out of the accruing profits of a business does not of itself make him or her a
partner in the business or liable as such;
(b) a contract for the remuneration of a servant or agent or a person e ngaged in a
business by a share of the profits of the business does not of itself make the servant or
agent a partner in the business or liable as such;
(c) a person who,
(i) was married to a deceased partner immediately before the deceased partner
(ii) was living with a deceased partner in a conjugal relationship outside marriage
immediately before the deceased partner died, or
(iii) is a child of a deceased partner,
and who receives by way of annuity a portion of the profits made in the business in
which the deceased partner was a partner is not by reason only of such receipt a
partner in the business or liable as such;
(d) the advance of money by way of loan to a person engaged or about to engage in a
business on a contract with that person tha t the lender is to receive a rate of interest
varying with the profits, or is to receive a share of the profits arising from carrying on
the business, does not of itself make the lender a partner with the person or persons
carrying on the business or liabl e as such, provided that the contract is in writing and
signed by or on behalf of all parties thereto;
(e) a person receiving by way of annuity or otherwise a portion of the profits of a business
in consideration of the sale by him or her of the goodwill of the business, is not by
reason only of such receipt a partner in the business or liable as such. R.S.O. 1990,
c. P.5, s. 3; 1999, c. 6, s. 52; 2005, c. 5, s. 55.
Page 2 of 6 Business entity name (note → applies to all)
The Business Names Act RSO
2. (1) No corporation shall carry on business or identify itself to the public under a name other
than its corporate name unless the name is registered by that corporation. R.S.O. 1990, c. B.17,
s. 2 (1).
(2) No individual shall carry on business o r identify his or her business to the public under a
name other than his or her own name unless the name is registered by that individual. R.S.O.
1990, c. B.17, s. 2 (2).
(3) No persons associated in partnership shall carry on business or identifythemselves to the
public unless the firm name of the partnership is registered by all of the partners. 1994, c27,
s. 72 (2).
(3.1) No persons associated in partnership shall carry on business or identify themselves to
the public under a name other than a firm name registered under subsection (3) unless the name
is registered by all of the partners. 1994, c. 27, s. 72 (2).
MUTUAL RIGHTS AND DUTIES OF PARTNERS (RELATIONSHIP OF PARTNERS TO EACH
may vary by partnership agreement/contract → consider what to include??
√ identify partners
√ nature of business to be conducted
√ duration of relationship
√ method of termination
√ rules to introduce new partners
√ what happens on death; retirement
√ participation in management
√ contribution in terms of work and responsibility
√ capital contribution
√ ownership of property
√ sharing of profits/losses
√ procedure to res