Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to setting up a dental, health, or legal professional corporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your professional corporation.  I should know – I’m one of them and you can contact me directly (michael@carabashlaw.com).

So you are a dentist and you want to have a professional corporation for tax purposes.  Here’s the general process:

1. Under the Regulated Health Professions Act, 1991, no corporation shall hold itself out as a health profession corporation unless it holds a valid certificate of authorization: s. 34.1(1).
2. Schedule 2 of that Act discusses Health Profession Corporations (ss. 85.8 through to 85.14).
3. Subject to the regulations made the Act and the by-laws, one or more members of the same health profession may establish a health profession corporation for the purposes of practising their health profession: s. 85.8(1).
4. The Certificates of Authorization (Ontario Regulation 39/02) are made under the Act.
5. You will need to have a corporation BEFORE you can have a health profession corporation.  In other words, a health profession corporation is simply a corporation holding a certificate of authorization. So the corporation will need to be registered under the Canada Business Corporations Act or the Ontario Business Corporations Act.  To register a corporation, you should have a lawyer prepare the articles of incorporation, the by-laws, director and shareholder resolution and meeting minutes, director and shareholder registry, etc.  A lawyer may also be needed to  create a special class of shares for certain family members (for income-splitting purposes).
6. If you would like a lawyer to fill out the Certificate of Authorization, lawyers would charge extra for their time and it would also cost $750 in fees to the Royal College of Dental Surgeons of Ontario.
7. Depending on the name you choose for your professional corporation, the normal time frame to incorporate is between 1-3 business days.  If there are issues with the name you’ve selected, it could take longer.

FYI, you might want to consider getting a memo from a lawyer on the tax advantages/potential traps of having a dental professional corporation.  There are many things that you should be aware of (e.g. income splitting, loans, attribution rules, etc.).  The way I see it, if you’re going so far as to spend $2,500 to $3,000 incorporating (which includes getting a certificate of authorization), you should spend a bit extra to find out what you can legally do with a corporation with respect to taxes.

written by admin \\ tags: articles of incorporation, business corporations act, business lawyers, canada business corporations act, dental health, health profession, health professions act, ontario business, ontario regulation, professional assistance, professional corporation, regulated health professions, regulated health professions act, shareholder resolution, valid certificate

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership and limited partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership and limited partnership agreements.  I should know – I’m one of them and you can contact me directly.

Following up on my recent blogs about Ontario limited partnerships, what they’re all about, how a limited partner can lose their limited partner status, and how a limited partnership is not a separate legal person, I thought I would blog about an important yet often overlooked aspect of using limited partnerships to raise money for an investment: complying with securities laws.

Ontario limited partnerships are generally used for tax planning purposes.  A group of persons want to start a business.  They realize that the business will generate losses in the first few years (which is normal when you’re first starting out).  They want to offset their income with those losses.  If they use a corporation, the losses will get trapped in the corporation.  The corporation can carry them forward (to a certain extent), but cannot transfer those losses through dividends to the shareholders.  Since a limited partnership is simply a flow-through structure and not a separate legal entity, its losses can be attributed to its partners.  So, to recap: Ontario limited partnerships are generally used for tax purposes (since they offer no advantages to mitigate liability vis-a-vis a corporation).

Now, we move on to securities laws implications.

When limited partnerships are being established, it’s not just a matter of complying with the provincial partnerships acts, the Income Tax Act, and any partnership agreement that may exist between the partners.  If the limited partnership is going to be offering “securities” (as defined under the Ontario Securities Act) through the offering of limited partnership interests that fall under that definition, then the limited partnership will need to comply with dealer registration, prospectus requirements, and other onerous obligations before it is allowed to offer those securities.  The limited partnership can, however, avoid complying with those securities law obligations if it qualifies for an exemption.  You should definitely consult with a business lawyer familiar with these exemptions BEFORE offering limited partnership interests. Also keep in mind that you’ll need to comply in ALL of the jurisdictions you’re proposing to offer securities.  So you’ll need to consult with lawyers about compliance in those jurisdictions (and the rules are not necessarily the same wherever you go!).  All too often, parties don’t think about complying with securities laws until it’s too late.  Then it’s only down hill from there: Ontario Securities Act proceedings which could result in worse things (e.g. civil litigation, bankruptcy, divorce, etc.).  OUCH!!!

written by admin \\ tags: business lawyers, educational purposes, first few years, legal advice, limited partnership agreements, limited partnerships, ontario business, partner status, professional assistance, securities laws, separate legal entity, shareholders, tax planning, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership and limited partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership and limited partnership agreements.  I should know – I’m one of them and you can contact me directly.

So following up on my previous blogs about limited partnerships (e.g. what they’re all about and how a limited partner can lose their limited partner status), I thought I would dedicate this blog to address the following question: is a limited partnership a separate legal entity from its partners?

The answer is “no”.

A limited partnership is a type of partnership governed by the Ontario Limited Partnerships Act, the Ontario Partnerships Act, and the limited partnership agreement that exists between the general and limited partners (if any).  There is nothing that confers on a limited partner the status of being a separate legal person.

With these things being said, there are a number of legal situations where a limited partnership appears to be a separate legal entity.  For example, a limited partnership:

• can sue and be sued;
• can file its own income taxes;
• can be petitioned into bankruptcy; and
• has its own property (for the purposes of dissolution and redistribution);

But don’t get confused: these instances are mere conveniences granted by statutes to a limited partnership to recognize it temporarily for various purposes (e.g. civil litigation, tax, bankruptcy, etc.).  Always remember that a limited partnership is simply a special kind of partnership that is not a separate entity from its partners.  Think of it like a marriage between persons…

written by admin \\ tags: business lawyers, Civil Litigation, legal person, legal situations, limited partners, limited partnership agreement, limited partnership agreements, limited partnerships, ontario business, ontario limited, partner status, partnerships act, professional assistance, separate legal entity, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership and limited partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership and limited partnership agreements.  I should know – I’m one of them and you can contact me directly.

As a follow up to my recent blog post about limited partnerships (what they are, how to create one, partnership name, etc.), I thought I’d follow up with another blog about how limited partners can LOSE THEIR LIABILITY STATUS!!!  Remember: I’m only dealing with Ontario limited partnerships.  You should check out your province’s own legislation dealing with limited partnerships and the caselaw that interprets that legislation.  Also, be sure to get a lawyer to update you on any new legislation or cases that impact limited partnerships.

So we start off with the idea that limited partners are generally liable only to the extent of their contribution.   Their contribution must be stated in the records of the limited partnership and such records must be kept at the limited partnership’s principal place of business in Ontario: s. 4.

Limited partners have a number of rights in the limited partnership (same as general partner) under the Ontario Limited Partnerships Act, including:

• the right to inspect and copy the books of the limited partnership (s. 10(a)):
• the right to be given a complete and formal account of the limited partnership’s affairs (s. 10(b));
• the right to obtain dissolution of the limited partnership by court order (s. 10(c));
• the right to share in the profits and other compensation of the partnership (s. 11(1)(a)), subject to other provisions of the Act;
• the right to have their initial contribution returned (s. 11(1)(b)), subject to other provisions of the Act;
• the right to examine the “state and progress” of the limited partnership business and advise as to its management (s.12(2)(a));
• the right to act as a contractor for or an agent or employee of the limited partnership or of a general partner (s.12(2)(b));
• the right to act as a surety for the limited partnership (s.12(2)(c)).

Now here’s the kicker: (as previously blogged about) if the surname or a distinctive part of a corporate name of a limited partner is used in the limited partnership’s name, then “the limited partner is liable as a general partner to any creditor of the limited partnership who has extended credit without actual knowledge that the limited partner is not a general partner”: s. 6(2) of the Ontario Limited Partnerships Act.

Even more importantly: if a limited partners “takes part in the control of the business” of the limited partnership, then they shall be fixed with the same UNLIMITED LIABILITY as a general partner: s. 13(1).  Keep in mind that a limited partner, simply by exercising their other rights and powers granted to them under the Act (i.e. above), will not assume the liability of a general partner.  Such liability only attaches to them exercising control beyond the scope of what they are allowed to under the Act.

So what have the Ontario courts said about this whole “takes part in the control of the business” situation?

Well, at present, the leading case in Ontario is Haughton Graphic Ltd. v. Zivot,33 B.L.R. 125 (Ont. H.C.J.), aff’d 38 B.L.R. xxxiii (Ont. C.A.), leave to appeal denied 38 B.L.R. xxxiii (S.C.C.).  Here are the facts of the case:

• The Defendants wanted to launch a magazine to be published in the U.S.
• They represented to a printing company that they were the president and vice-president of a limited partnership under Alberta Law.
• A deal was struck for the printing company to print the Toronto magazine.  In late 1982, it printed the first five issues.
  
• The limited partnership went into bankruptcy, leaving the printing company unpaid for the printing of three issues.
• The printing company decided to sue the limited partners personally to get its money back.
• Importantly: one of the defendants had incorporated a business and made it the general partner of the limited partnership. That defendant controlled the corporation.  That corporation employed both defendants.

So the question in that case came up: should the limited partners – in their personal capacity – be held liable for debts owed by the limited partnership on the basis that they took part in the control of the business? The court was looking at Alberta laws of limited partnership, which were akin to s. 13 of the Ontario Limited Partnerships Act.

The Ontario High Court of Justice essentially said: “Yes, they’re liable”.   Eberle J. said that the defendants were “in complete control of the limited partnership”: one defendant was the directing mind of the limited partnership, was responsible for it, and managed it.  He signed cheques on behalf of the limited partnership (the other defendant had authority to do so).  The fact that they were both employees of the general partner did not save them.

What’s also important in this case is that the Court rejected the defendant’s arguments that they shouldn’t be liable on the basis that the printing company knew it was dealing with a limited partnership.  The idea here is that a limited partner who takes part in controlling the business shouldn’t be liable if the creditor believes that the limited partner was a general partner.  But the court rejected that argument.  Eberle J. stated that that: “If reliance was a necessary precondition to unlimited liability for a limited partner, appropriate words should be in the statute”.

So what’s the moral of the story?  Be cautioned: if you’re both a limited partner and an officer or director of a general partner, your liability will be unlimited if you take part in the control of the business – even if you claim you did so in your capacity as an officer or director of a general partner and not as a limited partner!

written by admin \\ tags: brampton, business lawyers, general partner, general partnerships, liability issues, limited partners, limited partnership agreement, limited partnership agreements, limited partnerships, lps, ontario business, ontario limited, partnerships act, professional assistance, silent partner, value of money

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership and limited partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership and limited partnership agreements.  I should know – I’m one of them and you can contact me directly.

In this blog, I’ll be discussing Limited Partnerships (or LPs) – specifically, what are they, how they are created, and liability issues for the general and limited partners.

What is an LP?
A limited partnership is a partnership governed by statute and any governing documents agreed to between the parties (e.g. limited partnership agreement).  We begin our analysis with the Ontario Limited Partnerships Act.  Section 3(1) of that Act states that a limited partnership must consist of at least one person who is a GENERAL partner and one person who is a LIMITED partner.  And there can be more than one of each.  A general partner is essentially like a partner in a general partnership, which I have blogged about extensively.  They have all the rights and powers to manage and bind the limited partnership.  Importantly, their liability is UNLIMITED.  Think of a limited partner, on the other hand, kind of like a silent partner.  They don’t get involved in controlling the business of the partnership and their liability is generally LIMITED to the value of money and other property which they contributed or agreed to contribute to the limited partnership: s. 9.

How do you create an LP?
Interestingly, unlike general partnerships (which can come into existence without the partners being aware or even specifically trying to avoid that relationship), a limited partnership can only come into existence “when a declaration is filed with the Registrar”: s. 2(2). So what about the liability of a limited partner until that happens?  Well, until the declaration is filed and accepted by the Registrar, the partnership can only be characterized as a general partnership, which imposes UNLIMITED liability on the prospective limited partner.

Also worth mentioning is that you need to have a partnership before you can have a limited partnership.  This means that the basic test for forming a partnership must exist at all times – namely, that one or more parties carry on business in common with a view to profit (see s. 3 of the Ontario Partnerships Act).  In Backman v. R., [1997] T.C.J. No. 728, the Tax Court of Canada cited Pooley v, Driver (1876), 5 Ch. D. 460 and Stekel v. Ellice, [1973] 1 W.L.R. 191 to support the proposition that a “partnership” must exist under the Act in order to  create a limited partnership in Ontario:

74     Therefore, the mere act of registration does not create a limited partnership. As one commentator has noted in the context of the Ontario Limited Partnerships Act:

While the Ontario legislation provides that a limited partnership is formed when a declaration is filed with the registrar in accordance with the legislation, this provision does not appear to dispense with underlying requirement that there be a partnership embodying a relationship between persons carrying on business with a view to profit. In other words, registration of a limited partnership will not of itself create the relationship of partnership. Registration simply confers limited liability in respect of the limited partners and renders the partnership subject to the additional provisions of the Act.

75     Members of a purported limited partnership must share a view to profit in order for their arrangement or relationship to be considered a partnership for the purposes of the Act.

When that case was appealed, the Federal Court of Appeal made the following comments about Alberta Limited Partnerships Act (which is akin to the Ontario Limited Partnerships Act):

52     However, I do not read these provisions as giving the limited partnership some type of existence independent of the requirement to comply with the definition of partnership.

53 I see nothing in the limited partnership provisions of Part 2 [of the Alberta Limited Partnerships Act] that renders the definition of partnership inapplicable to limited partnerships…

Renewal
Every 5 years, a limited partnership declaration must be renewed and payment (currently $210) must be made to the government.  The renewal requires:

• that all general partners sign;
• that the limited partnership name be provided;
• that the address of the principal place of business in Ontario be provided; and
• that the general nature of the business be identified.

If the answer to these questions changes from the previous limited partnership declaration, then a declaration of change must be filed with the registrar.

Who cannot use a Limited Partnership?
In Ontario, professionals such as lawyers, doctors and accountants cannot use a limited partnership vehicle: they are prohibited from doing so.  They can, however, form a professional corporation or a limited liability partnership – a discussion of which shall be reserved for another blog.

Partnership Name
A few things are worth mentioning here about the name of the limited partnership.  First, if the partnership is going to operate under a business name other than the owner’s, then the business name must be registered under the Ontario Business Names Act.  The appropriate form can be found here (for now).  Second (VERY IMPORTANT): if the surname or a distinctive part of a corporate name of a limited partner is used in the limited partnership’s name, then “the limited partner is liable as a general partner to any creditor of the limited partnership who has extended credit without actual knowledge that the limited partner is not a general partner”: s. 6(2) of the Ontario Limited Partnerships Act.

written by admin \\ tags: brampton, business lawyers, general partner, general partnerships, liability issues, limited partners, limited partnership agreement, limited partnership agreements, limited partnerships, lps, ontario business, ontario limited, partnerships act, professional assistance, silent partner, value of money

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership agreements.  I should know – I’m one of them and you can contact me directly.

This is a follow up to my recent blog about partnership agreements (Part 1) (which dealt with the date, parties, and partnership name) and my other recent blog about partnership agreements (Part 2) (which dealt with the place of business, business of the partnership).  In this blog, I’ll be discussing Capital Contributions, Division of Net Profits, Accounting and Other Records, and Fiscal Year End. Keep in mind that these are different from limited partnerships and limited liability partnerships.  Please also further keep in mind that general partnerships are governed by their agreements and provincial statutes.

Capital Contributions
Capital contributions are assets (e.g. money, etc.) that the partners put into the partnership to help get the business on its feet (e.g. by paying for start-up costs and working capital).  In the absence of an agreement, partners must contribute equally.   Section 24.1 of the Ontario Partnerships Act only says that: “All the partners are entitled to share equally in the capital…of the business…[and]…must contribute equally towards the [capital] losses…”  It’s important to note that partnership agreements may want to include from the onset the obligation on partners to contribute capital in the future (e.g. at regular intervals).  Since a partnership is simply a flow through structure and does not have a separate legal existence from the partners who make it up, it cannot retain and reinvest earnings.  That’s why it’s a good idea to force partners to contribute additional capital from time to time.  This can be done, for example, by having the partners agree to reinvest a % of profits in the partnership business, maintain a reserve, or identify circumstances which would require specific amounts or percentages of capital to be contributed and when.

It’s worth mentioning that partners who transfer property to a Canadian partnership (and where all the partners so jointly elect) can do so on a tax rollover basis: s. 97(2) and 85(1) of the Canada Income Tax Act.  This means that property can be transferred at elected values instead of at fair market value (which may have tax implications).

Division of Net Profits
In the absence of an agreement, partners are entitled to share equally in the partnership business’ profits: s. 24.1.  In typical partnership agreements, the partners will agree to divide the net profits as per their capital contributions.  Remember: profits are only paid if there’s anything left after paying expenses.  That’s why it’s important for the partners to agree that, in a fiscal year, expenses and losses of the partnership will be paid out first and if there isn’t enough assets and income in the partnership business to offset those expenses and losses, then the partners will contribute in proportion to their partnership interest.  You may want to think about including a provision that requires periodic review of the division of net profits and the basis for revisiting partnership interests in profit.  For example, a partner who spends a great deal of time on non-billable administrative items (e.g. human resources management, information technology management, accounting, taxes, marketing management, etc.) may be rewarded with a higher interest in profits – perhaps even higher than their capital contribution.

Accounting and Other Records
Partners or their legal representatives are entitled to request and receive from other partners true accounts and full information “of all things affecting the partnership”: s. 28.  To help clarify what these “things” are, the partnership agreement should describe the nature of records, statements, books, etc. that are kept in the partnership (and where they will be kept).  The records should be sufficiently detailed for tax, legal, and business purposes.  Finally, you’ll want to make sure that you include a statement in the partnership agreement that requires that unfettered access to all records, data, accounts, and information stored electronically (by means of a computer, etc.) be given to all the partners and their legal representatives at all times.

Fiscal Year
Picking a fiscal year is not as straightforward as one thinks.

For accounting purposes, you should consult with an accountant or auditor to determine an ideal fiscal period for reporting.  For example, if your business is cyclical or seasonal, you may want to select a certain year end that helps to smooth income.   Be sure to seek advice!

For tax purposes (remember that partnerships must file an annual partnership information return after their fiscal period), the combined effects of ss. 96(1) and 249.1 of the Canada Income Tax Act make it clear that the fiscal period will be determined by the type of taxpayers (e.g. individuals, corporations, etc.) that make up the partnership group.  If any member of the partnership is an individual, then the fiscal year end must generally be the calendar year end (with certain limited exceptions).  If all of the members of the partnership are corporations, the the fiscal year end can be anywhere, so long as the fiscal period does not exceed 53 weeks: s. 249.1(1)(a).

written by admin \\ tags: brampton, business business, business lawyers, capital contributions, general partnerships, legal advice, limited liability partnerships, limited partnerships, net profits, ontario business, partnership agreements, partnership name, place of business, professional assistance, provincial statutes, working capital

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership agreements.  I should know – I’m one of them and you can contact me directly.

This is a follow up to my recent blog about partnership agreements (Part 1), which dealt with the following issues in partnership agreements: date, parties, and partnership name.  In this blog, I’ll be discussing the Place of the Partnership and a description of the Business of the Partnership. Keep in mind that these are different from limited partnerships and limited liability partnerships.  Please also further keep in mind that general partnerships are governed by their agreements and provincial statutes.

Place of Business
Identifying the place of business is important for record-keeping purposes.  Partners have rights to inspect partnership documents and records (e.g. financial records, etc.).  As such, there should be a clear indication of where the primary place of business or head office is located for the purpose of allowing partners to inspect and make copies of these records.

Business of the Partnership
Here, you’ll want to identify the business of the partnership (e.g. you can specify that the partnership will carry on the business of X for X in the geographic region of X).  It’s important for a couple of reasons.

First of all, non-compete clauses and other restrictive covenants generally use the “Business of the Partnership” as defined in the partnership agreement as the basis to limit partners’ ability to compete during and after the term of the partnership agreement.  Just make sure a lawyer review this so that it is properly defined (i.e. broadly enough or narrowly enough, depending on what the partners’ particular interests are).

Second, the business of the partnership – properly defined – should help limit the scope of a partner’s authority to bind  other partners. This is important because partners may sometimes act outside the scope of their authority (e.g. beyond the defined “business of the partnership”); if it can be said that the partner acted within the scope of the “business of the partnership” (based on a factual matrix), then one partner may inadvertently bind the other partners and make them liable for that partner’s acts and omissions.  That’s why it’s good to have a clearly written and agreed-upon  “business of the partnership”and to have it reviewed to ensure compliance!

Why is it so important?  Take the following example (the leading case in Ontario).  In McDonic v. Hetherington, 96 O.A.C. 289, 29 B.L.R. (2d) 1, 142 D.L.R. (4th) 648 (Ont. C.A.), two clients (sisters) sued a lawyer and his law firm partners in respect of investments which the lawyer had been making on their behalf.  The law firm had a substantial mortgage business and regularly invested funds for its clients.  The lawyer (without the other partners knowing) made investments on behalf of the sisters without telling them about the nature of the investments he was making, getting their approval, or protecting their interests.  But that lawyer used the law firm’s facilities, services, and employees to transact that business.  The sisters sued the lawyer and his law firm partners for negligence and breach of fiduciary duty (among other things).  The Ontario Court of Appeal found the partners liable because that one lawyer’s activities were WITHIN the scope of the law firm’s ordinary business and were performed within the implied or apparent authority of the partners. The Court of Appeal found there was nothing to suggest to the clients that the lawyer was acting in any capacity other than as a partner of the law firm.  The fact that the lawyer acted negligently or dishonestly or that partners weren’t aware of any of his business dealings didn’t matter! As such, the other partners were jointly and severally liable (judgment was: $10,198 for one sister and $231,557 for the other sister plus legal costs!) under the Ontario Partnership Act for the acts of that one partner. This goes to show that partnerships should be mindful of the business carried on by the partners!

Finally, the “business of the partnership” should likely be one of those clauses that requires the unanimous consent of all the partners to change it because of its importance.

written by admin \\ tags: business lawyers, business of the partnership, Canada Income Tax, canada income tax act, canadian partnership, cra, general partnerships, income tax act, legal advice, legal names, limited liability partnerships, limited partnerships, mississauga, nuts and bolts, ontario business, partnership agreement, partnership agreements, partnership business, professional assistance, provincial statutes, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership agreements.  I should know – I’m one of them and you can contact me directly.

As a follow up to a previous blog I wrote about basic partnership agreement templates, I thought it would be worthwhile to get into greater detail concerning the nuts and bolts of partnership agreements.  This is the first of a series of blogs about this topic.  In this blog, I’ll be discussing the Date, Parties, and Partnership Name considerations in a general partnership agreement for Ontario. Keep in mind that these are different from limited partnerships and limited liability partnerships.  Please also further keep in mind that general partnerships are governed by their agreements and provincial statutes.

Date
What is the date of the agreement?  This is important because, at the end of the agreement, there will typically be a provision saying that the agreement comes into force on the date first written above.

Parties
Here you want to be very clear as to who the parties are that are entering into the general partnership. Use full legal names and address.

Keep in mind that residency of the partners is important for tax purposes: if there is one partner who is considered to be a foreign resident under the Canada Income Tax Act, then the partnership cannot be considered a “Canadian partnership” for tax purposes: s. 102(1).  This is an interesting provision because it allows the CRA to essentially look through the partnership vehicle (keep in mind that it’s a flow through entity and not a separate legal person) to see who the partners are.

If one of the partners is a non-resident of Canada, then the partnership is not a “Canadian partnership”.  This has a number of significant impacts.  First, this non-resident status effectively denies a rollover (i.e. tax deferral) on partner transfers of certain property into the partnership (s. 97(2)); these rollovers are available only to “Canadian partnerships” in the form of an election. Second, non-resident partnerships are denied a rollover (i.e. tax deferral) on partnership property that is distributed to the partners on the dissolution of the partnership (s. 98(3)); again, these rollovers are available only to “Canadian partnerships”. Third, pursuant to ss. 212(1) and 212(13.1)(a), if a non-resident partnership pays an amount that is deductible to it under the Act to a non-resident partner, then the non-resident partner will be required to withhold 25% taxes on designated income (e.g. management fees, interest, rents, royalties, dividends, etc.) which it receives from the non-resident partnership! Ouch! Finally, non-resident partners may be liable to pay Canadian withholding taxes (e.g. 25%) when they dispose of certain taxable Canadian property (e.g. shares of Canadian companies, Canadian real estate, certain partnership and trust interests, etc.): s. 116(5). Therefore it’s important for tax purposes to know who the partners are and whether they are residents of Canada.

If you’re dealing with a corporate partner, be sure to get a lawyer to do the diligence on whether the corporate partner properly exists and has all the necessary powers and approvals to enter into the partnership.

A common question comes up: can a general partnership be a partner of a general partnership?  The answer is “NO”.  General partnerships are governed by the Ontario Partnerships Act and the written partnership agreement between the parties (which can override certain default rules of the Act).  That Act states in s. 3 that a partnership is entered into between “persons”.  Unfortunately, “persons” is not defined in that Act.  So we turn to s. 29(1) of the Ontario Interpretation Act, which defines a person to include “a corporation and the heirs, executors, administrators or other legal representatives of a person to whom the context can apply according to law”.  Since there’s no reference to a “partnership” as being a “person” capable of entering into a “partnership” under s. 3 of the Partnership Act, a general partnership cannot be a partner of a general partnership!  Phew…I hope you follow that logic!

Partnership Name
You need to specify here what the partnership name will be.  It is this name that the partnership must carry on business using.  You might want to do name searches to make sure that the partnership name is not being used or not used in your industry.  Furthermore, you may want to consider trademarking the name to better protect it.  The Ontario Business Names Act creates two requirements for partnership names under ss. 2(3) and 2(3.1):

2(3) No persons associated in partnership shall carry on business or identify themselves to the public unless the firm name of the partnership is registered by all of the partners.

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.

Let’s be clear here: the consequences of failing to register a partnership name does not mean that a partnership never existed.  A partnership’s existence will depend on the test set forth in section 3 of the Ontario Partnership Act and the court’s interpretation of that section.   This is to be distinguished from a limited partnership, which can ONLY exist upon the registration of the limited partnership name!

written by admin \\ tags: business lawyers, Canada Income Tax, canada income tax act, canadian partnership, cra, general partnerships, income tax act, legal advice, legal names, limited liability partnerships, limited partnerships, mississauga, nuts and bolts, ontario business, partnership agreement, partnership agreements, professional assistance, provincial statutes, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.   If you need legal advice with respect to becoming an independent contractor, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Ontario business lawyers in this regard.

So you’ve just started out as an independent contractor and the question comes up: what should I do about GST?

GST or “Government Sales Tax” is the tax that applies to the supply of most goods and services in Canada.  The rate is currently 5%.

Businesses are required to collect GST and remit it to the government.

According to the CRA, businesses are required to register for GST if they no longer qualify as a small supplier because their worldwide taxable supplies of goods and services exceed the small supplier limit of $30,000 in a single calendar quarter or in four consecutive calendar quarters.

So if you qualify as a small supplier, why would you bother to collect and remit GST?  Well, if in four consecutive calendar quarters, you believe that your worldwide taxable supplies of goods and services will exceed the small supplier limit of $30,000, then you’ll have to remit GST.  If you never registered prior to reaching that limit, then you won’t be able to reduce your GST liability through allowable business expenses (which are eligible for input tax credits).  Remember: you only remit to the government your net GST (i.e. GST collected minus total input tax credits).

Once you become a GST registrant, you are responsible for collecting GST from your customers on all taxable goods and services you sell or supply in Canada.  To this end, your responsibilities include:

• Informing your customers that GST is payable (e.g. on invoices, receipts, contracts, etc.)
• Collecting GST and holding in trust until you remit it to the CRA;
• Maintaining proper books and records (if you want to destroy your records before keeping them at least 6 years after the year end to which they relate, then you have to get written approval from the CRA);
• Calculating your net tax; and
• Filing your returns on time.

For more information on GST, visit the CRA’s website on that topic here.

In case you’re a Client and looking to engage the services of an Independent Contractor in Ontario, look no further:

Independent Contractor Agreement (Client) – No Schedules

This Agreement can be used by a Client who wants to engage the services of an Independent Contractor (e.g. a consultant, a professional, a general worker, etc.) without creating an employment relationship. The “Client” means that this Independent Contractor Agreement favours the Client – for example, through notice, termination, standards of care, and restrictive covenants, etc. The “No Schedules” means that there are no schedules in this particular Independent Contractor Agreement – although some have a Statement of Work or Description of Work, etc. This one does not. There will be different versions of this agreement which favour both the Client and the Independent Contractor and which may include Schedules. Schedules aren’t absolutely necessary. They’re just one way of having an agreement instead of writing things out in the actual agreement, you simply modify the Schedule. Here’s the sample Video Guide that comes with this Independent Contractor Agreement (Client) – No Schedules:

All of Dynamic Lawyers‘ legal forms are lawyer-prepared, simple to read, easy to customize, and only a fraction of the price a lawyer would charge. Also, each legal form comes with a FREE VIDEO GUIDE (watch a useful example of how this legal form can be customized), a FREE DL GUIDE (read helpful information about this legal form), and another FREE DL GUIDE that sheds valuable insight into how legal forms can be challenged. What are you waiting for? Best of all, if you DO need a lawyer and need some legal advice, simply make a post and get FREE quotes from Ontario lawyers focusing on the area of law you require!

written by admin \\ tags: allowable business expenses, business lawyers, collecting gst, consecutive calendar quarters, cra, educational purposes, government sales, gst independent contractor, gst liability, gst number, independent contractor, input tax credits, ontario business, professional assistance, proper books, sales tax