CALGARY GENERAL PARTNERSHIP LAWYER

Contact Neufeld Legal PC at 403-400-4092 or Chris@NeufeldLegal.com

A general partnership is a business arrangement where two or more individuals agree to share the responsibilities, assets, profits, and financial and legal liabilities of a jointly-owned business. It's one of the simplest and least expensive business structures to form, although in Alberta there are various governmental filings that should be undertaken at a bare minimum, including a "Declaration of Partnership" form and applicable business licenses. Nevertheless, as our analysis will demonstrate, such simplicity is a cause for legal concern, given the inherent legal vulnerabilities that it precipitates, and the rationale for more appropriate legal structuring of a general partnership.

What are the key characteristics of a General Partnership as a practical business matter for Calgary-based businesses:

  • Two or More Owners: A general partnership must have at least two partners.

  • Shared Control and Management: All partners typically have the authority to make business decisions and manage the day-to-day operations, unless a partnership agreement specifies otherwise.

  • Unlimited Personal Liability: This is the most significant characteristic and potential drawback. Each partner is personally responsible for the business's debts, obligations, and legal liabilities. This means their personal assets (e.g., house, car, savings) can be used to satisfy business debts, even if they were not directly responsible for incurring them. Partners are often "jointly and severally liable," meaning a creditor could pursue any single partner for the entire debt.

  • Pass-Through Taxation: The partnership itself does not pay income tax. Instead, the profits and losses "pass through" to the individual partners, who then report their share on their personal income tax returns. This avoids the "double taxation" that corporations can face (where the corporation pays taxes on its profits, and then shareholders pay taxes again on dividends).

  • Partnership Agreement (Highly Recommended): While a verbal agreement can technically form a general partnership, a written partnership agreement is highly recommended. This document outlines critical aspects like:

    • The roles and responsibilities of each partner.

    • How profits and losses will be shared.

    • Decision-making processes and voting rights.

    • Capital contributions of each partner.

    • Procedures for dispute resolution.

    • What happens if a partner leaves, retires, or passes away.

  • Ease of Formation and Dissolution: General partnerships are relatively easy and inexpensive to set up and dissolve compared to more complex structures like corporations.

When considering the use of a General Partnership, Calgary-based businesses frequently look at the following reasons when making their determination on commencing operations as a General Partnership:

  • Simplicity and Low Cost: It's one of the easiest and most affordable business structures to establish and maintain, with fewer legal formalities and administrative burdens compared to corporations. This makes it attractive for small businesses or those just starting.

  • Shared Resources and Expertise: When two or more individuals want to combine their money, skills, experience, and effort to start and run a business, a general partnership allows them to pool these resources. This can lead to a stronger foundation and better decision-making.

  • Shared Workload and Responsibilities: The workload and management duties can be divided among partners, reducing the burden on any single individual.

  • Pass-Through Taxation: The direct pass-through of profits and losses to personal tax returns can simplify tax filing and potentially offer tax advantages, as the business itself isn't taxed.

  • Flexibility in Management: Partners typically have equal control and flexibility in managing the business, allowing for swift decision-making in day-to-day operations.

However, it's crucial to weigh these advantages against the significant disadvantage of unlimited personal liability. For businesses with higher risks or those where partners want to protect their personal assets, other business structures might be more suitable and/or provide legal advantages that are not available with a general partnership.

Providing strategic legal advice and direction to business partnerships and joint ventures engaged in commercial activities in Alberta, from partnership / joint venture formation to internal governance to contracts and business transactions to dispute resolution. Contact our law firm at a href="mailto:Chris@NeufeldLegal.com"> Chris@NeufeldLegal.com or 403-400-4092 to schedule a confidential initial consultation for your business partnership or joint venture.

General Partnership versus Limited Partnership