Dissolving the Partnership

Please keep in mind that this is not legal advice. The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about an Ontario partnership agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers). We have Ontario lawyers who can assist you in this regard (I would know, I’m one of them!). If you want to get in touch with me directly, feel free to email me directly to discuss all your partnership agreement needs!

In this blog (and definitely the next few), I’ll be talking about how to terminate or dissolve the partnership under certain sections of the Partnerships Act.  I’ve previously blogged about dissolving a partnership generally, but I wanted to get into some more detail here (specifically with respect to what the courts have said about these things).

So, as a recap, you can terminate a partnership in accordance with the provisions of the agreement itself.  But there are various provisions in the Partnerships Act that could apply as well.  Here are a few (FYI, if you’re wondering which sections would apply in your situation, you can give me a shout for a legal opinion or make a post on Dynamic Lawyers)…

Section 26(1)
Section 26(1) of the Partnerships Act provides that, where no fixed term is agreed upon for the duration of the partnership, any partner may determine the partnership at any time by giving notice to all the other partners.  This section has been interpreted in Patridge v. Seguin, [1991] O.J. No. 1355 to mean that, where the partnership agreement is silent as to the duration of the partnership, any partner may unilaterally terminate the partnership by giving notice.  If, however, the partnership agreement provides for the termination of the partnership, then this section will not apply.  As such, this section is subject to any agreement between the partners.

Section 32(c)
Section 32(c) of the Partnerships Act is similar to section 26(1).  Section 32(c) states that, subject to any agreement between the partners, a partnership is dissolved if entered into for an undefined time, by a partner giving notice to the other partners of his intention to dissolve the partnership.  This section is subject to any contrary agreement between the partners, whether express or implied.  Furthermore, the words “undefined time” used in Section 32(c) does not necessarily mean an “indefinite period” (Keith v. Mathews, Dinsdale and Clark, [1999] O.J. No. 1202).  This section has been interpreted in Patridge v. Seguin and Keith v. Mathews, Dinsdale and Clark to mean that, where the term of the partnership is defined, then a partner may not unilaterally terminate the partnership by giving notice under this Section.

Section 35(1)(d)
Section 35(1)(d) of the Partnerships Act allows a partner to apply to the court for an order dissolving the partnership on the basis that another partner has wilfully or persistently committed a breach of the partnership agreement, or otherwise so conducts himself or herself in matters relating to the partnership business that it is not reasonably practicable for the other partner or partners to carry on the business in partnership with that partner.  Courts have set a high threshold for dissolving partnerships in this manner: there must be a breakdown in the relationship as between the partners such that mutual confidence (i.e. trust and reliance) no longer exist.  In essence, the partners cannot continue carrying on the partnership business together according to the original agreement: Barnabe v. Touhey, [1992] O.J. No. 96 and Damis Holdings Ltd. v. Briarcrest Apartments Ltd., [1974] O.J. No. 672.  Largely as a consequence of the agency relationship, and the capability of incurring joint and several liability for the remaining partners, partners are entitled to a very high standard of conduct as amongst themselves.  Any breakdown in that relationship or conduct, such that the partners could not thereafter have reasonable trust and confidence in their partners, would generally be circumstances permitting the dissolution of the partnership.  Keeping erroneous accounts and not entering receipts, refusal to meet on matters of business, continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly co-operation, have been held sufficient to justify a dissolution: Barnabe v. Touhey.

Section 35(1)(f)
Section 35(1)(f) of the Partnerships Act allows a partner to apply to the court for an order dissolving the partnership on the basis that circumstances have arisen which render it just and equitable that the partnership be dissolved.  To obtain dissolution under this section, it must be established that there been such a complete breakdown and mutual trust and confidence among the partners as would preclude all hope of reconciliation and future co-operation: Barnabe v. Touhey (1992) O.J. No. 96, Kucher v. Moore (1991), 3 B.L.R. (2d) 50, PWA Corp. v. Gemini Group Automated Distribution Systems Inc., [1993] O.J. No. 723, and Ellerforth Investments Ltd. v. Typhon Group Ltd., [2009] O.J. No. 3714, aff’d [2010] O.J. No. 1470.  It must be impossible for the partners to place that confidence in each other which each has the right to expect and that such impossibility has not been caused by the person seeking to take advantage of it.  Evidence of a deadlock or substantial disagreement on questions of day to day management of the operations will suffice: Landford Greens Ltd. v. 746370 Ontario Inc., [1993] O.J. No. 1311. A court may also order dissolution under this section on the grounds that the parties have very different views as to the future of the partnership; in other words, there has been a material change of circumstances which makes it impossible for the partnership to be carried on in the way the partners had originally contemplated: Ellerforth Investments Ltd. v. Typhon Group Ltd.

That’s it for now…I’ll get into more about dissolving partnerships in another post…

Remember: you can contact me directly if you need a partnership agreement!  You can also contact me if you wish to purchase a text link on this blog post!

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Co-Ownership vs. Partnership

Please keep in mind that this is not legal advice. The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about an Ontario partnership agreement, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers). We have Ontario lawyers who can assist you in this regard (I would know, I’m one of them!). If you want to get in touch with me directly, feel free to email me directly to discuss all your partnership agreement needs!

In this blog, I’ll briefly discuss co-ownership in the form of tenants in common and how this structure differs from a partnership.  Before talking about those differences, it’s worthwhile to discuss what holding property as tenants in common means.

To start, you should know that co-ownership means that two or more parties are owning property together.  They can do so as tenants in common or as joint tenants.  Tenants in common each have an interest (which need not be equal) in the property which can be transferred generally unilaterally and without anyone else’s consent; upon death, that interest would go to their estate and the beneficiaries thereunder.

If, however, parties are holding land as joint tenants, then a right of survivorship arises: the surviving party obtains the other party’s interest in the property when that party dies.  Joint tenancy have equal, unlimited, and free access to the property in question.  Transfers of property interests must be made unanimously.

There are important control, estate, and tax consequences that may arise – depending on whether you’re holding property as a tenant in common or as a joint tenant.  Now, with these preliminary things said and done, I will move on to the differences between owning property through a partnership vs. owning property as tenants in common and NOT through a partnership.

Parties can be co-owners of property without necessarily being partners (Section 3.1 of the Partnerships Act). Here are the key differences between partnerships and co-ownerships:

• Being a co-owner of property as a tenant in common is based on a contractual arrangement, not governed by statute, which is similar but not identical to partnership.
• Unlike in a partnership, co-ownership can arise simply from the arrangement of ownership, whereas a partnership requires an agreement to form the partnership.
• The sharing of profit or loss is a key indicator as to whether a partnership exists.  In co-ownership, these elements will generally be separate between the co-owners.  Indeed, co-ownership may exist for purposes other than the sake of gain or pecuniary advantage (e.g. social, religious, cultural, charitable, etc.), whereas a partnership requires this result: the partners must be working together to try to make profit.
• Co-ownership generally permits the co-owners to unilaterally transfer the interest in property, whereas partnership property is governed by the requirement of approval of the partnership (unless the agreement says otherwise).
• Unlike a partner, a co-owner is not an agent for the remaining co-owners and has no lien on anything owned in common for outlays, expenses or indemnity for obligations.
• The co-ownership of property remains an interest in real property, whereas the partner’s interest, through the partnership ownership is a personal property interest.  In other words, the partner’s interest is not in the property that they contribute to the partnership or which the partnership owns, but in the partnership itself!   Partners essentially transfer their direct right to property by taking a direct right to owning an interest in the partnership.  This results in considerably different treatment in the event of the death of a co-owner or partner.

Remember: you can contact me directly if you need a partnership agreement!  If you’d like to purchase a text link on this or any other blog post, you can also contact me directly.

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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 some of the things you should think about concerning registering an Ontario limited partnership if you’re outside of Ontario.  There are a few ways this could go down…so lets talk about ‘em, shall we?  Now keep in mind that I’m only talking about registering and maintaining a limited partnership from the perspective of the Limited Partnerships Act (not tax laws, securities laws, corporate laws, etc.).

Extra Provincial Individual General Partner
First, if you are an individual who does not live in Ontario and you want to register an Ontario Limited Partnership, you can still do so.  You can register the limited partnership such that you are personally going to be the general partner.   The danger here, clearly, is personal liability: general partners have unlimited liability for the limited partnership’s debts, losses, liabilities, etc.  Be sure to contact me or make a post on Dynamic Lawyers if you need help filling in the Declaration (Form 3).  You’ll also need to have someone in Ontario be your attorney to deal with your interest in the limited partnership here.  They will need to keep a copy of the completed power of attorney (Form 4) at the address set out in the declaration: section 25(5).  The attorney will have the power to act as attorney and representative (e.g. sue, be sued, accept service of process, receive all lawful notices, execute all deeds, etc.) with respect to the limited partnership.

Extra Provincial Corporation
If you have a corporation that wishes to be the general partner (for liability purposes) of the limited partnership, then that corporation will first need to obtain an extra-provincial license.  I’ve been told by the Ministry of Consumer and Business Services that they won’t register a limited partnership unless they have this license (simply because the corporation won’t be in their database otherwise).  To get this license, you need to pay a government fee, fill out appropriate forms, and you may need to obtain (if the corporation was created outside of Canada) a certificate from the incorporating authority (i.e. the government body usually) showing information about the corporation and the present status.  Originals are required!  Also, translations into English may be required too!  If you need help with this, contact me or make a post.  Again, I should mention that there may be important tax considerations with respect to how the corporation will be taxed.  Treaties may become relevant, etc.  You should consult a lawyer as this kind of thing gets complicated.

Once an extra-provincial license is secured, the next step is to apply for a declaration for an an-extra provincial limited partnership.

Extra-Provincial Partnership?
Interesting thought: could a partnership outside of Ontario be the general partner of an Ontario limited partnership?  Think about that one for a second.  You basically have a partnership being a partner of a partnership…

The answer, as far as I can tell, would lie in the Interpretation Act.  The reason is because the Limited Partnerships Act says that a “person” can be a general partner.  So who then is a “person”.  Well, the Intrepretation Act says: “person” includes a corporation and the heirs, executors, administrators or other legal representatives of a person to whom the context can apply according to law”.  Did you see partnership?  Nope.  Not there.  So an extra provincial partnership cannot be the general partner of a partnership.  So it won’t be able to apply.  Only humans, companies, and their representatives.

Records
Now, it’s important to keep in mind that, regardless of who the general partner is, records of the limited partners MUST be kept at the limited partnership’s principal place of business in Ontario.  So what if the limited partnership does NOT have a principal place of business in Ontario?  What if the limited partnership is simply a business structure used elsewhere in the world?  Well, then the Act (section 26(3)) says that the records of limited partners must be kept by the attorney and representative of the extra-provincial limited partnership at the address stated in the power of attorney.

Right to inspect: remember: any person may inspect the records of the limited partners during the business hours of the limited partnership or its attorney and representative.  Any person can also make copies of and take extracts from it: section 26(4).  Even the Registrar appointed under the Business Names Act may require these things.

OK, so the power of attorney and record of limited partners must be kept at the Limited Partnership’s principal place of business in Ontario.  What about other records – for example, a copy of the partnership agreement, limited partnership declaration, court orders, written authorities?  Well, those would need to be kept at its principal place of business in Ontario: section 33(1).  But what if the Limited Partnership doesn’t have a principal place of business in Ontario?  In that case, then those documents must be kept by the attorney and representative in Ontario at the address stated in the power of attorney.  Any partner may inspect these documents during normal business hours and so too can any person who has a business relationship with the partnership: sections 33(2) and (3).

Remember: if you are outside of Ontario and need help registering a limited partnership here, feel free to contact me or make a post on Dynamic Lawyers.

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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 some of the things you should think about concerning terminating the limited partnership.

Recall that the limited partnership is governed by the Limited Partnerships Act and the terms and conditions of a limited partnership agreement.  So those are two sources that could govern the intended or unintended termination of a limited partnership.

Cancellation vis-a-vis Limited Partnership Agreement
Sometimes, the limited partnership agreement that governs the conduct of the parties to a limited partnership will deal with the issue of termination.  For example, termination may arise as of a certain date, after a certain time (e.g. 5 years), on the occurrence of a certain event or situation arising, or upon agreement in writing (for example) by all of the parties.  There may be notice requirements that must be followed with respect to the latter.  There may also be issues as to how many (e.g. majority, unanimity) of the partners – be they limited or general – are capable of requesting termination of the limited partnership.  A limited partnership agreement may also discuss those not so great situations where the limited partnership is terminated for ’cause’ (i.e. because of an act or omission of one of the partners).

Cancellation vis-a-vis General Partner
First, under this Act, a limited partnership is dissolved on the following events happening to the general partner:

• death of a general partner
• mental incompetence of a general partner
• dissolution of a corporate general partner

These things being said, any remaining general partner can continue the business of the limited partnership IF it has right to do so in a partnership agreement and the consent of all remaining partners is obtained. So what if all the partners in the limited partnership agreed that a majority of the remaining partners – not unanimous consent – was required?  What if they agreed to that unanimously in a limited partnership agreement?  That’s an interesting point.  Just to clarify: the idea is that any percentage less than ALL of the remaining partners can consent to a remaining general partner from continuing on as the general partner.  Can this be done?  Some might say: couldn’t those remaining partners simply consent that not everyone’s consent is required in these circumstances?  Perhaps majority consent?  Recall that limited partnerships are also governed by the Partnerships Act, which says that the default clauses of that Act can be varied by the consent of all the partners: s. 20.  But the problem with that is that the Partnerships Act only applies insofar as it does not conflict with the Limited Partnerships Act: s. 46.  Since the Limited Partnerships Act doesn’t allow for partnership agreements to vary the requirement that ALL remaining partners consent (as discussed above), you’d be violating this statute by doing otherwise.

Interesting (or mind-bogglingly confusing) stuff, eh?

So how could a general partner be dissolved if it’s a corporation?  Well, it could be dissolved for failure to comply with corporate or tax laws.  It could also be dissolved by court order under the relevant statute.  It could be wound up as part of an agreement by the shareholders (e.g. pursuant to the terms of a shareholders’ agreement).

Cancellation vis-a-vis Limited Partner
Limited partners can try to dissolve the limited partnership through a court order: s. 10(c).  That said, this right should be looked at in light of the limited partnership agreement, which may create contractual rights between the parties concerning the dissolution of the limited partnership by applying for a court order.

A limited partner also has the right to have the limited partnership dissolved and its affairs wound up where the limited partner is entitled to the return of its contribution but, upon demand, that contribution is not returned to the limited partner.  Note: I’m curious as to what form the demand must take and how long it must go unreturned for this provision to be applicable.   Just some side-thoughts….  Furthermore, a limited partner can have the limited partnership dissolved if the OTHER liabilities of the limited partnership have not been paid (i.e. not liability to the limited or general partners) or the limited partnership assets are insufficient for their payment and the limited partner seeking dissolution would otherwise be entitled to the return of their contribution. I know that’s a mouthful, but you get the idea: (1) OTHER liabilities have not been paid and limited partner wanting dissolution would otherwise be entitled to the return of their contribution or (2) limited partnership assets are NOT ENOUGH to pay OTHER liabilities and the limited partner wanting dissolution would otherwise be entitled to the return of their contribution.

Filing Declaration of Dissolution
In these three examples (i.e. termination pursuant to agreement, or dissolution because of something to do with the general or limited partner), the limited partnership must file a DECLARATION OF DISSOLUTION with the registrar under the Business Names Act.  This declaration must be filed when the limited partnership is dissolved or when all of the limited partners cease to be limited partners: s. 23 of the Limited Partnerships Act. Furthermore, the declaration of dissolution must be signed by at least one of the general partners.  When it’s filed, the declaration of the limited partnership is canceled: s. 23(3).

Cancellation vis-a-vis Registrar
Under s. 23.2 of the Limited Partnerships Act, the Registrar under the Business Names Act can cancel a limited partnership declaration – thereby eliminating the limited liability enjoyed by the limited partners as of that point – for failure to pay the required fee.  This can only be done, however, if the Registrar gives the limited partnership 21 days notice of the intention to cancel.

At the end of the day, there’s a lot of guidance you’re going to need (going through the partnership agreement, the legislation, and shareholder agreement for the general partner, etc.) if you’re thinking about dissolving or terminating the limited partnership.  Your best bet is to get professional help: make a post on Dynamic Lawyers.

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As a follow up to our new 42 page FREE eBook entitled “Buying and Selling Residential Real Estate in Ontario“, and our 28 page FREE eBoook entitled “Wills and Estates in Ontario”, we are pleased to announce the release of a new eBook entitled “Business Organizations in Ontario, Canada“:

This 33 page eBook will cover topics such as:

- What are the various business structures available to those wishing to do business in Ontario, Canada (e.g. sole proprietorship, general or limited partnership, and corporation)?

- What are the legal requirements to establish these various business structures?

- What are the advantages and disadvantages of each business structure?

- How are these business structures dissolved?

- What is the general tax treatment of these business structures?

Grab your copy today!

Remember: the information provided in the eBook is not legal advice and is provided for informational and educational purposes only.   If you need legal advice with respect to business matters (e.g. incorporating, establishing a general or limited partnership, etc.), seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Brampton, Mississauga and other Ontario lawyers registered to help you with your business matters.

Given that business law and legal structures is a big topic, I’ll probably need to come up with another eBook in the coming months on the different other kinds of business structures available (e.g. professional corporation, franchise, joint venture, independent contractor, etc.).

written by admin \\ tags: business organizations in ontario, corporation, free ebook, general partnership, limited partnership, partnership, sole proprietorship, toronto business lawyer

Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only. If you would like to get in touch with a lawyer to help you draft, interpret, negotiate or resolve a dispute about a joint venture, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa lawyers who can assist you in this regard (I would know, I’m one of them!).

So this blog will deal with the basics of a joint venture agreement or contract.  In other blogs, I’ll get down to the nitty gritty.

Definition
Plaint and simple, a joint venture is a contract between two or more parties to share resources, knowledge, skills, etc. towards a common objective.

Parties
As usual in these types of agreements, the parties are identified at the get-go (make sure this is done properly or else your contract won’t be worth the paper it’s written on!).

Recitals
This is the background story you want to tell that leads up to the formation of the joint venture.  It could go something like: Party X does Y and has Z.  Party A does B and has C.  The two would now like to join forces to make even more $$$.  So they’re agreeing to have a joint venture in accordance with the terms and conditions set out in the joint venture agreement or contract…

Definitions
It’s a good idea to set out the definitions you’re going to be relying upon near the top of the joint venture agreement (for ease of reference and good organization).  You could include definitions here about “Confidential Information” (assuming there will be confidential information passed between the parties as a result of the joint venture), what constitutes “Force Majeure” (e.g. act of God that relieves a party of liability under the agreement in certain circumstances), etc.

Business Structure
The joint venture agreement or contract will generally state how the joint venture is structured.  Is it simply two separate entities acting in concert through the joint venture agreement or contract?  Will there be a new corporation formed?  Will there be a partnership formed?  Will that partnership be a general or limited liability partnership?  For more discussion about the general forms of business one can structure in Ontario, check out this free information about business structures we’ve been accumulating.

Nature of the Relationship
So will the joint venturers be partners (capable of binding each other), corporate shareholders, or simply joint venturers (i.e. their rights and obligations are limited to the terms of the joint venture agreement or contract).

Term and Termination
How long will the joint venture last for and what events give rise to its premature termination?  Will the parties simply be able to give each other notice?  Will the joint venture dissolve by operation of law, by one party filing for bankruptcy, by one party attempting to illegally assign their interest in the joint venture to a third party, etc.?  Again, you should consult with a lawyer to find out what kinds of things typically go in this section.  Also important is what to do in the even of default.  Does one of the joint venturers become liable to pay the other if they are at fault?  Who determines fault and according to what test (e.g. sole and absolute discretion)?  There’s a lot to think about here…

Joint Venture Assets and Benefits
How will these things be deal with?  Will there be a percentage of ownership?  Will the benefits be based on revenues or profits?  Can these interests be assigned?

Operations
How will the joint venture be operated on a day-to-day basis?  Will the joint venture committee have the power to enter contracts on behalf of the joint venture?  Perhaps the joint venture committee will create a new corporation to take on a certain responsibilities and simply own equally the shares of the new corporation.  That new corporation would operate as a separate business, but its shareholders would be the joint venturers (who would elect the directors, who in turn would appoint the day-to-day officers).  This would be a good place to put reporting and record-keeping requirements too.

Joint Venture Responsibilities
Here, we get to the nitty gritty of who will be responsible for what in the joint venture. Separate paragraphs will be needed for each of the parties.

Joint Venture Management
Will there be a committee?  Will representatives from each of the parties be on the commitee?  Will there be a chairperson?  How will meetings be managed, votes and decision made?  Will there be direction from owners and delegation to the committee?  In my opinion, and as I’ve previously blogged about, businesses should be run as dictatorships with consultants, not as democracies (too many voices means things won’t get done).  

Representations and Warranties
What kinds of true, fair, and complete statements must the parties make to induce the other parties to enter the agreement?  The parties want to know that their joint venturer partners have the authorization and operational wherewithall to do what it is they are about to do.  If these representations and warranties no longer hold true, then what’s the consequence?  Notice?  Termination?  This should be spelled out here…

Liability and Indemnification
Will the joint venturers try to limit their liability from each other in connection with the joint venture?  Will they indemnify each other for their own wrongdoing – whether in contract, tort, negligence, misconduct, breach of statute or otherwise?

General Terms and Conditions
This section of the Joint Venture Agreement will deal with things like (which I’ve previously touched on in teh context of an independent contractor agreement):

• Notices
• Entire Agreement
• Governing Law
• Interpretation
• Assignment
• Waiver
• Cumulative Remedies
• Counterparts
• Enurement
• Entire Agreement
• Time of Essence
• Independent Legal Advice
• Force Majeure
• Severability
• Survival
• Currency

written by admin \\ tags: agreement, assets, bankruptcies, bankruptcy, blog, breach, business, circumstances, confidentiality, contracts, corporation, indemnification, lawyer, lawyers, liabilities, negligence, negotiating, Negotiations, partnership, percentages, relationships, separation, shareholder, shareholders, shareholdings, toronto

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 dissolving a partnership, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your partnership dissolution.

The Ontario Partnerships Act contains various provisions dealing with circumstances in which a partnership can end.

First, a partnership can end by notice or by a contractual term in the partnership agreement: ss. 26 and 32.

Second, a partnership can terminate by death, insolvency, charge on a partner’s share or illegality of business: ss. 33 and 34.

Third, a partnership can be terminated by court order: s. 35.  This method of dissolving a partnership requires that an application be brought for one of the following reasons:

1. one of the partners is found to be mentally incompetent;
2. one of the partners becomes permanently incapable of performing his or her part of the partnership;
3. one the partners has been guilty of conduct that prejudicially affects the carrying on of the business;
4. one of the partners willfully or persistently permits a breach of the partnership agreement or otherwise so conducts him or herself in a manner relating to partnership business that it is not reasonably practicable for the other partners to carry on the business partnership with him or her;
5. when the business of the partnership can only be carried on at loss; or
6. when in any circumstances have arisen that in the opinion of the court render it “just and equitable that the partnership be dissolved”.

In conclusion: a partnership can only be terminated according to the terms and conditions of the partnership agreement and under one of the provisions of the Partnerships Act.

written by admin \\ tags: dissolving a partnership, ottawa business lawyers, partnership, partnership agreement, partnership business, partnership dissolution, partnerships act, toronto, toronto business lawyers

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 tax issues, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto business and tax lawyers registered on the website who can answer your questions.

So you have a corporation and you want to give your spouse and interest-free loan?  What could go wrong, you say?  Well, the tax implications may not make it worth your while.

For starters, s. 15(2) of the Canada Income Tax Act provides as follows:

15 (2) Where a person (other than a corporation resident in Canada) or a partnership (other than a partnership each member of which is a corporation resident in Canada) is

(a) a shareholder of a particular corporation,

(b) connected with a shareholder of a particular corporation, or

(c) a member of a partnership, or a beneficiary of a trust, that is a shareholder of a particular corporation

and the person or partnership has in a taxation year received a loan from or has become indebted to the particular corporation, any other corporation related to the particular corporation or a partnership of which the particular corporation or a corporation related to the particular corporation is a member, the amount of the loan or indebtedness is included in computing the income for the year of the person or partnership.

So if a person is “connected” with a shareholder of a corporation and receives a loan from that corporation, then the amount of that loan is to be included in that person’s income for the year (and hence tax must be paid on it).  Here, the word connected is defined in s 15(2.1) to include person with whom the shareholder does not deal at arm’s length with (which includes your spouse).

What about the interest free part of the loan, you say?  Well, under s.80.4(2), the spouse may have to include the amount of interest that would have otherwise been paid in their income tax (and hence pay tax on it):Idem

80.4(2) Where a person (other than a corporation resident in Canada) or a partnership (other than a partnership each member of which is a corporation resident in Canada) was

(a) a shareholder of a corporation,

(b) connected with a shareholder of a corporation, or

(c) a member of a partnership, or a beneficiary of a trust, that was a shareholder of a corporation,

and by virtue of that shareholding that person or partnership received a loan from, or otherwise incurred a debt to, that corporation, any other corporation related thereto or a partnership of which that corporation or any corporation related thereto was a member, the person or partnership shall be deemed to have received a benefit in a taxation year equal to the amount, if any, by which

(d) all interest on all such loans and debts computed at the prescribed rate on each such loan and debt for the period in the year during which it was outstanding

exceeds

(e) the amount of interest for the year paid on all such loans and debts not later than 30 days after the later of the end of the year and December 31, 1982.

So if a person is “connected” with a shareholder of a corporation (i.e. which includes a spouse) and receives a loan from that corporation, then that person will be deemed to have received a taxable benefit (i.e. must pay tax on) equal to the difference of the interest they paid in the year and the interest they should have paid in the year (i.e. a prescribed rate).

Overall, therefore, a shareholder of a corporation who offers his or her spouse an interest free loan could be doing more harm than good: the principal and the interest might end up being included in the spouse’s income for tax purposes.

Please keep in mind, however, that there are other provisions in the Canada Income Tax Act which modify or make these sections inapplicable; it really depends on the particular situation.  For this reason, you are once again cautioned to consult with a tax lawyer on Dynamic Lawyer to get a clear understanding of your legal rights and obligations before taking action.

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Please keep in mind that this is not legal advice.  The information provided herein is for educational purposes only.  If you believe you require assistance in deciding which business structure is best for you, then you are encouraged to seek a professional (e.g. make a post on Dynamic Lawyers).

In this blog, I’ll be discussing limited liability partnerships, which can be distinguished from general partnerships (discussed in another blog).

Defined
Ontario’s Partnership Act governs limited liability partnerships. A limited liability partnership is a partnership designated as such (s. 44.1). As of July 1998, amendments to the Partnerships Act permitted professions (such as lawyers) to practice in the form of limited liability partnerships.

Ease of Creation
Ontario’s Business Names Act provides that “[n]o 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” (s. 2(3)).

In addition to registering the general partnership’s name in the same manner as a sole proprietorship’s, the partners will generally enter into a partnership agreement to modify the default rules prescribed by the Partnership Act. This partnership agreement will usually outline the relationship of the partners to each other and to third parties.

The partnership agreement will also deal with issues such as “term of the agreement, names of the partners, who owns which of the assets, name of the partnership and who owns the name, capital contributions if any, how profits are to be shared, how the partnership is to be managed, how holidays and illnesses are to be handled, liabilities and disability insurance, admission and withdrawal of partners, how the partnership is to be run and conditions and mechanics for dissolution of the partnership” (source: Wendy E. Oughtred, Going It Alone: A Start Up Guide for the Sole Practitioner, (Aurora, Canada: Canada Law Book Inc., 1995), p. 51).

The partners must also establish standards for fee distribution within the firm, including the means of rewarding lawyers for bringing business to the firm, as well as the lawyers who actually work on cases.

Continuity
Unless the partnership agreement provides otherwise, a limited liability partnership can be dissolved in a number of ways, including:

• At the expiration of the partnership’s term, adventure, or undertaking (if specified) (s. 32(a) and (b) under the Partnership Act);
• By the death or insolvency of any of the partners (s. 33(1) of the Partnership Act);
• By the happening of an event which makes it illegal for the partnership to continue (s. 34 of the Partnership Act); and
• On application by a partner in respect of prescribed circumstances (s. 35 of the Partnership Act).

Liability
Unlike a general partnership – where the partners are liable for debts and liabilities arising from the negligent acts of all partners – the partners in a limited liability partnership are not personally liable for the negligent acts of another partner or an employee who is directly supervised by another partner (s. 10(2) of the Partnership Act). However, the partnership assets continue to be at risk for the negligence of the partners and employees (s. 10(3.1) of the Partnership Act). A limited liability partnership is required to carry insurance coverage for each of its member.

Taxation
Like a general partnership, a limited partnership is a flow-through entity, which means that income earned by the partnership is passed on to the partners without being taxed at the partnership level. “If a partnership earns dividend income, taxable capital gains, or realizes a business loss, these sources would be received as dividend income, taxable capital gains, or business losses in the hands of the partners” (source: Clarence Byrd and Ida Chen, Byrd & Chen’s Canadian Tax Principles, 2006-2007 ed. (Toronto, Canada: Pearson Prentice Hall, 2007), p. 863.). The income, losses, and tax credits of the firm is first determined and then allotted to the individual partners in accordance with their equity interest in the partnership (as per the partnership agreement). The income earned by the individual partners will be fully taxed at their personal income tax rate (source: Clarence Byrd and Ida Chen, Byrd & Chen’s Canadian Tax Principles, 2006-2007 ed. (Toronto, Canada: Pearson Prentice Hall, 2007), p. 862). The fiscal year end of the partnership will be same as the individual partners – namely, December 31st of each year (sources Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), ss. 96(1) and 249.1(1). See also Clarence Byrd and Ida Chen, Byrd & Chen’s Canadian Tax Principles, 2006-2007 ed. (Toronto, Canada: Pearson Prentice Hall, 2007), p. 862.

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There are over 17,000 individuals in Toronto who can call themselves a Toronto attorney.  Each Toronto attorney typically has his or her own specialty.  The day of the general practitioner is not as it once was (and is slowly fading away).  In fact, specialization is a preferred strategy to earn above-average returns in any given industry.  Besides, think of how hard it would be for a lawyer who ‘does it all’ to keep up to date with the changing laws in every given legal area.  It’s way too difficult and that’s where negligence cases may arise.

In any event, I thought I’d spend some time discussing the various types of Toronto attorneys that you can come across on a day-to-day basis.  Here’s the first breakdown of types of Toronto attorneys (please keep in mind that this list of the types of lawyers out there is not exhaustive):

• Toronto Real Estate Attorneys: help you buy and sell residential, investment, farm, cottage, recreational, condominium, and cooperative properties.  They also you get a mortgage financing and refinancing as well.

• Toronto Personal Injury Attorneys: help you litigate, settle, or otherwise resolve claims arising from:
  • accident benefits claims
  • dog bites
  • disability claims
  • medical malpractice
  • motor vehicle accidents
  • negligence actions
  • personal injury claims
  • product liability
  • slip and falls

• Toronto Business Attorneys: help you to incorporate and organize, merge/amalgamate, and dissolve your business.  They can help prepare, review, interpret, revise, negotiate, litigate, and resolve the following business documents:
  • shareholder agreement
  • partnership agreement
  • joint venture agreement
  • franchise agreement
  • commercial leases
  • business acquisitions
  • regulatory compliance
  • constructions contracts
  • employment agreements

• Toronto Wills and Estates Attorneys: they offer services from a basic will and powers of attorney  to more complicated tax-planning structures, such as inter-vivos trusts and estates freezes.  They can also help personal representatives in the administration and distribution of estate assets.  Finally, they can litigate on behalf of beneficiaries or the estate trustee on issues such as mental capacity of the testator, validity of a will, etc.

• Toronto Family Attorneys: they can help you with your marriage breakup by drafting a separation agreement.  They can also help you with issues such as divorce, spousal and child support, child custody, possession of the matrimonial home, and the equalization of net family property.
  

• Toronto Criminal Defense Attorneys: they can help represent you against government bodies that have charged you with criminal or provincial offences (e.g. careless driving), including:
  • DUI (driving under the influence)
  • assault
  • sexual assault
  • fraud
  • theft

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