Canada allows for two forms of partnership: a general partnership or a limited partnership. In certain circumstances, these can also later be ‘incorporated’ into a limited liability partnership.
General Partnerships
A general partnership is a good business structure if you want to carry on a business with a partner and you do not wish to incorporate a formal company.
With a partnership, financial resources are combined and put into the business. You can establish the terms of your business with your partner and protect yourself in case of a disagreement or dissolution by drawing up a specific business agreement. As partners, you would share in the profits of your business according to the terms of your agreement.
When establishing either kind of partnership, you should have a partnership agreement drawn up with the assistance of a lawyer, to ensure that:
- You are protecting your interests
- That you have clearly established the terms of the partnership with regards to issues like profit sharing, dissolving the partnership, and more
- That you meet the legal requirements for a limited partnership (if applicable)
General Partnership Advantages:
- Easy to start-up a partnership
- Start-up costs would be shared equally with you and your partner
- Equal share in the management, profits and assets
- Tax advantage, if income from the partnership is low or loses money (you and your partner include your share of the partnership in your individual tax return)
General Partnership Disadvantages:
- Similar to sole proprietorship, as there is no legal difference between you and your business
- Unlimited liability (if you have business debts, personal assets would be used to pay off the debt)
- Hard to find a suitable partner
- Possible development of conflict between you and your partner
- You are held financially responsible for business decisions made by your partner (for example, contracts that are broken)
Limited Partnerships
Limited Partnerships are another form of business registration in Canada, which creates a Canadian company, but does not generate filing and tax obligations in Canada for partners who are not residents of Canada.
This form of business registration is thus better for foreign businesses or individuals who wish to establish a business presence in Canada. It is extremely popular among software developers, web programmers, computer support specialists and IT service providers, who offer services to customers in Canada, US and Europe.
Other common uses of a Limited Partnership in Canada include: a regular trading company for doing business in Canada, US, EU and other highly regulated jurisdictions, an agent working under Sales Agency Agreement.
The principal may be any legal entity including companies registered in low and zero tax jurisdictions. Software development and IT support services, when major customers are located in Canada, US and EU. Online based businesses (website development, marketing services, auctions, webstores, etc.).
Unlike a general partnership, each partner is responsible only for his or her own liabilities. It makes partners more fully accountable to their clients or customers and ensures that all partners can engage in their business without the concern of having their personal assets at risk (unless there is negligence or wrongdoing).
Limited Partnership Advantages:
- No restrictions on the residency of partners
- Availability of one-man limited partnership, when one person is a sole general and limited partner
- There is no minimum capital requirement.
- No withholding tax on profit received by partners outside of Canada
- No requirements to file corporate tax returns
- No corporate income tax.
- Each partner is only responsible for own liabilities
Limited Liability Partnerships
Finally, a Limited Liability Partnership (LLP) is a more formal structure that certain types of partnership may be eligible for. Eligible General or Limited Partnerships can be later registered as Limited Liability Partnerships and at such point the partnership ceases to be a registered general partnership or limited partnership (Partnership Act s103.).
In Canada, a limited liability partnership is usually only available to groups of professionals, such as lawyers, accountants and doctors. These partnership agreements and their formation requirements and eligibility requirements are governed by specific provincial legislation. For instance, currently in Ontario, only lawyers, chartered accountants and certified general accountants may form a Limited Liability Partnership.
Like the normal partnerships, the name must include an appropriate legal element, such as “Limited Liability Partnership” or “LLP” (Partnership Act s100) or the French equivalent, in its name. The name cannot include a last name or a distinctive corporate name unless it is the last name or corporate name of one of the general partners. The name of a Limited Partnership may be in English-form, French-form or both.
Limited Liability Partnerships also need to maintain an office where a current and alphabetical list of its partners is kept and make that information available for inspection and copying during normal business hours (Partnership Act part 6).
Limited liability partnerships are required to file with the registrar an annual report each year within two months of the anniversary date of its registration. Further, any change to the information provided in the registration statement will need to be filed with the registrar.
Registration Steps for All Partnerships
Obtain Right to Use Corporate Name
Like a corporation, you must first conduct a name search and obtain the right to use the name, as detailed earlier in this article. This search can be done directly via NUANS or through a Search House, and confirms no one else has a business or registered trade mark with the same name or similar to the name you’ve chosen for your corporation. You must provide a current NUANS (New Upgraded Automated Name Search) report with your application for incorporation.
Just as with a corporation there are restrictions on the names you may use. The name cannot include restricted words, such as “bank”, “trust”, “insurance”, “stock exchange”, “university”, “academy”, etc. or words that imply the business is connected with the Government of Canada.
Time: 5 days – 1 week
Cost: CAD $21.47 plus applicable taxes,higher if using a Search House
Register name of Partnership with Corporations Canada
Each Limited Partnership is required to have a legal name registered with Corporations Canada.
The name must include a legal element, such as “Limited Partnership” or “LP” (Partnership Act s100) or the French equivalent. The name cannot include a last name or a distinctive corporate name unless it is the last name or corporate name of one of the general partners. The name of a Limited Partnership may be in English-form, French-form or both.
Time: 1-3 days
Costs: CAD $275 plus CAD $21.47 name reservation fee.
CAD $35 annual report filing fee
Obtain Right of Use of Corporate Name
For all types of businesses, including partnerships, you must get Corporations Canada to assign to you the exclusive use of the desired corporate name in Canada. There are two things to submit:
- New Upgraded Automated Name Search (NUANS) report, and;
- Corporate Name Information Form
The Corporate Name Information Form contains background information about the proposed name and reasons behind choosing it. While it is optional, it can prevent problems in the process, and thus is strongly recommended.
NUANS Name Search Report
This is a document that includes a list of business names and trademarks that sound similar to the name an incorporator is proposing. The list is drawn from NUANS, the national data bank of existing and reserved business names as well as trademarks registered and applied for in Canada. Note that a NUANS Name Search Report is valid for 90 days from the date of the report. If you do not apply to incorporate within this period, you will have to obtain a new report.
There are two ways to get a NUANS Name Search Report:
Directly Order a NUANS Name Search Report Online
Located at https://www.nuans.com, this system provides direct access to the NUANS name search service. However, as this is a self-service, it does not provide any professional assistance or recommendations available from a registered NUANS “search house”. The name in your NUANS Name Search Report may be rejected if it does not comply with CBCA name regulations. Thus if you go this route, be sure that you understand the requirements you must meet before Corporations Canada will approve a name.
Ask For a Report From a Search House
A search house is an independent, private-sector business that charges a fee for advice on the availability of your corporate name choice.
You can find a list of these firms on the NUANS website or in the Canadian Yellow Pages directory under “Searchers of Records.”
Corporate Name Information Form
Although this is optional the approval of a corporate name may be facilitated if you provide information about your reasons for choosing the name.
A form is available at the NUANS website.
However, instead of this form you may also simply submit a letter describing the corporation’s activities, products and services, target clientele, where you expect the corporation to operate, and the origin of the distinctive element(s) of the corporate name.
Side Note: If you intend to do business in the Province of Quebec, please note that the Province of Quebec does not currently provide corporate name data to NUANS. It is your responsibility to verify with the Registraire des entreprises, Quebec that the chosen corporate name is not used in Quebec by another business. You do not have to provide a report from the Registraire des entreprises, Quebec with your Articles of Incorporation.
Time: Allow 1 week for searches of all states
Cost: CAD $21.47 plus applicable taxes (higher if using a Search House).