As we all know Partnership is the involvement of two or more persons for the achievement of a common motive generally the profits from business. It may be made through the verbal or the written agreement.  It may be for profit or not for profit. In general, the partnerships are written for the rights/duties of partners and other rules governing the partnerships. Partners share the assets and liabilities of the business and are eligible to withdraw the profits as per the sharing ratio pre-decided in between them. The agreement through which all the conditions of the partnerships are recorded is called partnership deed.

In Canada the partnerships are governed by the province jurisdictions. Canada does not provide separate legal existence to the partnerships for the tax purposes meaning no separate tax assessment is done for the partnerships. The partnership has to file a form T5013 information return through which the details for the gains/loss accruing to the partners is reported to the tax agency. Basically, the partnership in Canada is a flow through entity and is not a taxable entity. So, all the incomes/loss are taxable in the personal hands of the partners.

However, in main the partnerships are of three types

1. General Partnerships.
2. Limited Partnerships.
3. Limited Liability Partnerships.

The fourth one is also there- Limited Liability Limited Partnership, but this form is not recognized in all the provinces.

1. General Partnership

This is the unlimited form of a partnership where the partners are fully liable for the liabilities of the partnerships and can be sued in personal capacity for any of the unpaid liability of the partnership. The owners are considered same as the business and hence all the personal assets are liable against any losses. Each partner got rights to bind the business and other partners with the acts performed and so the mutual responsibility is very high. There is a way through which a general partnership can be made kind of limited liability partnership

2. Limited Partnership

This form of partnership requires at least one general partner and rest can be the limited partners. A limited partner is the one who has limited liability for his share/investment in the partnership. The personal assets of the limited partner remain safe as for the unpaid liabilities of the partnership he cannot be sued in personal capacity. The limited partners do not look after the routine affairs of the partnership. Limited partners are basically sleeping partners with investment done.

Limited partnerships are generally done for some specific and time bound business ventures like constructions of the buildings for resale or film making etc.

3. Limited Liability Partnership

This form of partnership is actually a combination of the first two like everyone has the right as general partner and can perform any function but the liability is restricted for the acts done by himself and the liability is unlimited that could hit personal assets of the partner. This form is used when the liability of the partners has to be protected against the risks that could arise in general partnership. This form is best suitable for the business that deal with professional work like- lawyers, accountants, doctors, architects, engineers etc. The partner who worked and performed the service will only be responsible for the liability arising out of it. personal assets of partners could be involved for other general claims against the partnerships and has to be borne by all the partners as in the general partnership.

1. Partial shield- This happens when the partners are protected against the outcome of the actions done by other partners due to negligence, malpractice or misconduct. However, it does not prevent partners from the general claim arising out of the contractual or operational reasons. All the partners will be responsible for the liability arising out of contractual or operation general claims.

4. Full Shied- BC and ON provide full protections to the partners from the claims arising as general claims from contractual or any claim arising out of the misconduct by the other partner. The partner who does misconduct will be responsible for the liability arising out of the wrongful acts.
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6. Limited Liability Limited Partnership

This is an extended form of the limited partnership where even the general partner has the limited liability. So, in this all the partners will have the limited liability. This form is not available in Canada

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Note: The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situations.

 -Raman Nagpal

B.Com, CA, CMA, DISA