Many individuals or companies decide to enter into a commercial relationship with other individuals or companies. In the absence of a written partnership agreement or another form of written agreement such as a joint-venture agreement, the parties conducting themselves in such a commercial relationship are more than likely to be deemed partners. In the absence of a partnership agreement, the Partnership Act of British Columbia is the legislation which governs the rights, obligations, and duties of the parties to each other. Pursuant to the Act, all parties will be deemed to share equally in profits realized by the business, liabilities created by the business, and the management of the business.

Favourable aspects of partnership
In British Columbia, a partnership is very informal. There is no requirement to register a partnership unless the parties intend to operate in the area of mining, manufacturing or trading. Thus, the creation of a partnership is simple and cost-effective. One of the major advantages of a partnership versus incorporation is tax treatment. In the event a business is not earning money, generally, the parties to a partnership can deduct business losses from other income.

Disadvantages to partnership
The main disadvantage is the liability which could attach to any partner for the acts of another, or the business in general. Generally, each partner is 100% liable for these actions. Therefore, the need for proper insurance is heightened.

Properly drafted partnership agreement
Most sophisticated businesspersons will require a written partnership agreement to be in place before investing in a business partnership or proceeding with operations. This is a way to counteract presumptions of the Partnership Act and ensure that the rights and obligations of all parties to the partnership are clearly spelled out and delineated. It is important to ensure the proper decision-making procedures are spelled out and clear to all parties as well as matters of dispute resolution.

Rob Monterio

Rob has been practising law in British Columbia since 2005. With years of experience in estate administration, commercial and corporate law, as well as residential real estate transactions, Rob offers his clients an unparalleled degree of professional expertise and timely advice.