Partnerships

A. What is a partnership? Required Reading

Casebook 4-24 Van Duzer 28-49

1. Partnership Lawa. Determines when a partnership is created and the resulting legal consequencesb. Law in areas not governed by statute consists of rules made in judicial decisionsc. Codified for the first time by English courts in Partnerships Act of 1890d. Provinces have constitutional jurisdiction to enact laws regulating partnerships under s. 92(13) of Constitution Act

1867 (jurisdiction in relation to “property and civil rights”); all have adopted statutory regimes based closely on Partnerships Act (in Ontario it’s the Partnerships Act)

i. Few changes have been made to these acts, and there is extensive case historyii. In Quebec (civil law jurisdiction) partnerships governed by Civil Code (past decisions not binding but are

used as persuasive argument for interpreting the code)1. Same general nature; but the rules change depending on how they’re formed

a. Declared or undeclared partnerships; declared are those that are registered; in an undeclared partnership, only those partners known by a 3rd party creditor doing business w/ partnership liable to third party

iii. In no jurisdiction, do statutory provisions provide complete code to regulate affairs of partnerships -> as a result, substantial body of judicial decisions

1. Also, partners will often modify rules through contract (partnership agreement)2. The Legal Nature of Partnership

a. Partnership exists any time there are “persons carrying on a business in common with a view to profit…”b. Not a separate legal entity; partners are fully liable

i. Continuing existence of partnerships depends on continuing participation of partners (if partner leaves, it is terminated)

ii. Partner may not be an employee of business (can’t contract with yourself) or be a creditorc. There are several ways in which partnership is treated as a collective entity:

i. For convenience, partnership often called a “firm” & name under which partnership carries on business is called the firm name

ii. For tax, it is calculated at firm level and then allocated to partners in accordance with their entitlements to profits under statute/agreement & must be included as personal income (even if all profits are reinvested & no cash paid to partner)

iii. Actions against a partnership may be commenced & must be defended using firm name (partners personal property liable)

d. Rationale for personal liability: creditor confidence, principal should always be liable for actions of its agentse. If partner A winds up paying full liability, is entitled to be indemnified to half from partner B

3. Definition of Partnershipa. General

i. Important to know when a partnership arises because sometimes you can be found to be a partner without anticipating this & consequences can be disastrous

1. Issue usually arises when creditor is trying to get their moneyii. “carrying on a business”:

1. ‘business’: every trade, occupation, and profession (any ongoing activity or even single transaction, Thrush v Read [1950]); restaurant that hasn’t opened its doors is a partnership (spent money to get it set up) but agreement o carry on business at a future time is not sufficient

a. Have they done enough to justify a conclusion that they have commenced business which they agreed to carry on?

b. Doesn’t have to be an ongoing relationship, can be one time transaction (Spire Freezers Ltd v The Queen)

c. If they’re just passive investors, probably not (i.e. all own a building & collect rent individually) unless theyre sharing profits & participating in management

iii. “view to a profit”1. Simply means that undertaking is not for charitable, social, or cultural purposes2. Just a view, don’t actually need to make profits3. Spire Freezers Ltd v the Queen

a. Facts: partnership established to develop luxury condo project & operate low-rent apt complex. Spire acquired 50% interest in partnership from original Party A. Original party B sold shares to a number of investors & bought condo development. This created a $10 Mil loss. Spire wanted in to write this loss off but they did stay on and manage the apartment complex which did make some profit.

b. Revenue Canada: not a partnership, no view to profitc. Supreme Court of Canada: Spire is a partner because it carried on business of apt complex;

performed significant management activity & has significant stake4. In Backman v The Queen, the same situation resulted in a different decision because the

remaining assets in the partnership where limited and so was management required -> no partnership

iv. “in common”: means partners carrying on business together based on some kind of agreement (verbal, written, implied)

1. Agreement is determined objectively (so persons can be partners without their knowledge); must demonstrate intention to participate in relationship that fits with definition of partnership -> doesn’t matter if they describe themselves as partners/deny they are partners, all facts taken into account (agreement, conduct, any other circumstances) -> its all about intent!! “whether an agreement exists is determined objectively in the sense that persons may be characterised as partners without their knowledge and even contrary to express intentions (Weiner v Harris) so long as the corut decides the circumstances show the existence of an agreement.

2. Green v Harnum: no actual agreement but bought fishing boat together, had joint bank account, split profits, etc.

3. Red Burrito Ltd v Hussain: letter of intent to set up a corporation for a restaurant, red burrito put fwd money to renovate hussain’s premises for the business; he locked out red burrito two months after opening restaurant -> court said it was clear they planned to carry on business even though they never actually set up corporation

4. Cressman, Foster Health Facility Inc v Furniss: partnership agreement drafted but not signed = not enough evidence BUT still found that it existed with respect to sharing of the profits because they did this over a number of years (court found an ‘income partnership’ but not an ‘ownership partnership’)

5. Surerus Construction and Development Ltd v Rudiger: no partnership even though they referred to themselves as partners because they hadn’t agreed when partnership would start or when one of the partners would put $ in

v. So, court will infer agreement if it has been given effect through actionsvi. Provincial partnerships statutes set out some guidelines:

1. Common ownership of property alone does not make co-owners partners (OPA s. 3.1)2. Sharing of gross returns (business revenues without deduction of expenses) does not created a

partnership (OPA s. 3.2)3. Since Waugh v Carver the primary indicator is whether profits were shared (s. 3.3 OPA) -> its

almost proof in absence of evidence to the contrary4. In Cox v Hickman (leading case), established that fundamental characteristic of the relationship of

partnership is mutual agency (partnership exists where each person alleged to be in it carries business on behalf of other partner)

5. Often, there is a partnership found & the issue is who is a partner? Is business being conducted on their behalf? In this regard, one of most important indicators is sharing of profits (revenues – expenses)

a. If a person is compensated out of revenues, only has a stake on how much business sellsb. If they’re compensated out of profits, they must be concerned about how its managed

(how expenses are used); also, claim to profits is claim to residual valuec. Also, agreement to share losses is highly indicative

6. Prior to Cox, several cases (including Waugh v Carver) held sharing of profits conclusive (this was found later to be too broad); list of profit sharing relationships that aren’t partners listed in s. 3.3(a) to (c) in OPA:

a. Debtor/creditor relationshipb. Spouse/child receiving annuity paid out of profitsc. Purchaser of business pays share of profits of business to vendor as consideration for sale

of businessd. Lender’s compensation = share of profitse. Employee paid under profit sharing plan

b. Debtor/Creditor Relationship (this is sometimes difficult to distinguish from a partnership)i. Cox v Hickman: creditor/debtor relationship though it looks like a partnership

1. Facts: owner of ironworks entered to agreement with creditors under which property of business transferred to trustees appointed by creditors who would run business; debtors would retain beneficial interest if all debts were paid off; several creditors installed as trustees and they can do whatever (take profits, sell, wind up, etc)

a. Business becomes indebted to Hickman, who sues creditors alleging that they’re partners in the business

2. Court of Appeal: are partners -> on basis of extensive involvement of creditors in business (access to books, ability to control who trustees were, make rules, received all benefits of the business); thus business was being carried on for benefit of creditors

3. House of Lords: not partners; would have to find that business carried out for benefit of Cox & Wheatcroft as principals; here, the true relationship is debtor & creditor -> trustees carrying on business on behalf of debtors (debtors retain interest in profit but are using it to pay creditors)

ii. Pooley v Driver: debtor/creditor in name & formality but in substance is a partnership1. Facts: Borrett, Hagan & Lenders entered into an agreement to set up business whereby the

lenders would receive a rate of interest varying with profit/receive share of profits. This is in line with English law @ the time which has provision almost identical do OPA S. 3.3(d) which said that lenders in that situation are not partners. However, there was a complex partnership agreement in place that referred to ‘other partners’ and the agreement with the lender had many similar stipulations

2. Held: lenders were partners, extra agreements made it so for following reasons:a. Alleged partners had interest in capital just like interest of acknowledged partnersb. Lender’s ability to enforce covenants of partnership agreement gives them a degree of

participation/control of business unusual for lenderc. Having return on lender’s investment vary w/ aggregate amount invested highly unusual

for a lender, but not a partnerd. Clause that if lender bankrupts their relationship terminates unusual for lendere. Unusual for lender to have to pay back profits & original investment if there’s not enough

assets to pay creditor on dissolutionf. Coincidence of loan & partnership terms (both 14 years) suggests partnership

3. In this case, fact that they share profits doesn’t raise presumption of partnership but doesn’t preclude partnership (s. 3.3 (d) OPA)

4. These cases show limited operational effect of (a) to (e) of s. 3.3 OPA & similar provincial ones -> just examples of relationships that aren’t partnerships, up to court to decide situationally

5. Variety of factors court will take into account in determining whether any given relationship is a partnership or a debtor/creditor relationship

a. Includes degree to which alleged partner is involved in or has control of business & nature of financial relationship with the business, esp. liability for obligations

b. No factor is conclusivec. Co-ownership

i. S 3.1 OPA: holding property in some form of common ownership does not, of itself, create a partnership in relation to the property, even if they share profits from use of property

ii. Many situations where it won’t create partnership, i.e. when it passes from one person on death to multiple people (co-ownership but no partnership)

iii. Big difference, co-owners are not agents of each other -> one co-owner cannot bind another; can transfer your share (ability to do this in partnership more limited -> need to have consent from all partners, also you jointly own assets of business, not individually)

iv. Where they share profits, its getting close to partnership but need something more -> some management of other business activity must exist (degree is elusive though)

1. Did they intend to carry on business or simply to make an agreement to clarify their splitv. A. E LePage Ltd v Kamex Developments

1. Facts: co-owners of property with following arrangements:a. profits paid in proportion to their interest & each liable in same proportionsb. “right of first refusal” (can’t sell share without offering it first to other partners)c. Any sale/dealing with property required approval by majority vote

2. Held: not partners; they still have control of their own share; right of first refusal not inconsistent with co-owner’s basic right to deal with respective interests

a. Intention confirmed by individual treatment of respective interests for tax purposes3. This meant that exclusive listing contract by one owner on behalf of all others not binding

vi. Where there is substantial participation in management, partnership will likely to be found (though this is not required for a partnership); degree is unclear here though

1. Common bank account, agreement to share costs of developing business, common participation in financing business & dealing w/ tenant concerns were held to be indicative of partnership in Volzke Construction v Westlock Foods Ltd

2. Practically speaking, its difficult because there’s always management neededd. Agreeing to be a Partner: what about when there is a claim that you are a partner?

i. W v MNR1. Facts: daughters & widows of number of deceased partners claimed they’re partners, RC says no

(they want higher share from people making more money actually working in the firm)2. Held: are partners because they entered into agreement where they’re IDed as partners &

acknowledged that theyre liable for losses and entitled to profitsii. SEE Figure 2.2 on PAGE 48 for factors suggesting partnership relationship

e. Managing the Risk of Being Found a Partneri. Difficult to know when sometimes; important for lawyers

ii. If clients want to avoid being a partner, lawyer will have to give careful consideration to see if there is a risk of being called partnership & advised to take steps to avoid

iii. Change nature of relationship, structural changes to relationship, making it a corporationiv. Is client being appropriately compensated for residual risk of partnership liability?

Statutory References

Partnerships Act, ss 1-5, 45

Business Names Act, ss 1,2,6,7,10

B. How Does a Partnership Carry on Business?

I. Relations Between Parties

Required Reading

Casebook pp. 24-26

VanDuzer pp. 49-54

1. Generala. Usually specified in partnership agreementb. OPA ss. 20-31 provides set of default rules (standard ford contract kind of), hasn’t been amended since late 19th

century -> will often be contrary to expectations of parties entering in a partnership2. Default Rules

a. Based on presumptionsi. Small number of partners who are all equal in financial interest & right to participate in business

b. in practice, this rarely happens; usually unequal financial contributions & responsibilitiesc. SEE FIGURE 2.3 p. 50 for list of most important default rulesd. Default rules can be displaced by conduct that shows clear intention to displace the rules

3. Fiduciary Duty: partners owe a fiduciary duty to each other -> must deal with partnership & with partners in utmost good faith

a. Must never put personal interests ahead of interest of partnershipb. No expression of this in OPA, well established in common lawc. Some provisions in OPA which create specific obligations consistent with this general duty

i. Each partner obliged to render each other partner “true accounts & full info” regarding all matters affecting partnership (s. 28) -> right to access documents prepared for/by partnership

ii. Must account to partnership for benefits obtained from any transaction concerning partnership or use of its name, property, or business connection & any profits made by competing

d. Rochwerg v Truster: use of business connectionsi. Facts: partner in accountant firm became director of a client; also purchased 8000 shares & option for

additional 24,000 for nominal price. Disclosed directorship & paid directors fees to partnership but didn’t include investment, he thought it was private.

ii. Held: duty under s. 28 required him to disclose investment, it affects the partnership, had to account for profits (they are benefits derived from partnership business connection)

e. Mohammadamin v Zameni: non-competition obligation extended beyond termination of partnershipi. Sold his share in auto parts business & set up a competitor nearby

f. Olson v Gullo: partner who sold part of real property owned by partnership had to pay profits of sale to partnership -> partner in breach still benefits though

g. Can exclude things by agreement, likely to be interpreted narrowly as an exception to fiduciary duty4. Partnership Property

a. Consists of all property contributed to partnership and that acquired on behalf of partnership of for purpose & in course of its business

i. Especially when bought with money belonging to partnershipii. Will become partnership property even when title is retained by individual partner

b. Once its partnership property, must be held & used exclusively for purposes of partnership & in accordance w/ terms of agreement (individual basically loses beneficial interest, can’t then sell without consent)

i. Once you agree to give it, can’t just take it back without consentii. If you want to retain interest, make sure its clear & in writing

Statutory References

P.A. ss. 20-31

II. Relations With Third Parties

Required Reading

Casebook pp. 26-34

VanDuzer pp. 54-63

1. Basic Rulea. Unlike default rules governing internal relations of partners, rules governing relationships between partnerships

and third parties are mandatoryb. Partnerships become liable in contract when someone who is an agent of firm enters into contract on its behalfc. Under OPA, each partner considered an agent of the firm; s.6 says acts of partner in usual course of business bind

the firm (except when partner in fact has no authority to act & the other knows this)i. No partnership liability for acts outside scope of business

d. partnership liable for torts & other wrongful acts/omissions of employees/agents (where partnership authorised wrong/ratified it after, where wrong was committed by agent/employee in ordinary course of business)

e. partners may be liable for fraudulent acts of partnersi. Ernst & Young Inc v Falconi: law partners held liable for partner who assisted bankrupt clients with

fraudulently disposing of their property; held that its in the usual course of businessii. Dubai Aluminum Co. Ltd v Salaam: lawyer helps fraud, HoL says question is whether partner is authorized

to engage in conduct of the same general kind as the dishonest conduct f. Civil wrongs: liability of firm not limited to common law torts, includes breach of fiduciary duty etc (“wrongful act

or omission) (Canada Inc v Strother)i. Facts: firm held responsible for lawyer taking a conflicting client

g. Time at which liability arises is critical for determining who is responsible for it: you are liable for anything that happened while you were partner in the firm (even after you leave & they bind your estate; ss. 18(2) & 10 OPA)

i. Behind the scenes, partners may have to indemnify one another ii. Obligations created after you leave or prior to your arrival don’t affect you; though if obligation that was

incurred before you arrived is settled/judged against your firm while you’re there, your interest loses value

2. Holding out and related sources of liabilitya. If you were “held out” as a partner (i.e. represented as a partner) at the time of obligation you may be liable for

obligations incurred during that time (i.e. name on a sign, name in the firm name, etc but only if this was permitted by the person who’s name it was)

i. However, person who advanced credit to the firm must have relied on the holding out in doing so (National Building Society v Lewis)

b. one of the most common situations in which this happens is when a partner retiresi. if people who dealt with the firm prior to retirement & who innocently continue to rely on

creditworthiness of retired partner would expect to hold that partner liable unless 1. told of their retirement (can be done by publishing name in Ontario Gazette s. 36(2))2. the person never knew that the retiring partner was a partner3. partner left because firm because he became insolvent/died

ii. continuing to use name usually is considered holding out; people can hold liable any person who is an ‘apparent’ member of the firm (OPA s. 36(1))

c. name must be used with that person’s knowledge & permission (Tower v Ingram)d. SEE Fig 2.5 on Page 63e. What should retiring partner do to minimize liability for obligations of partnerships after retirement?

i. Ensure everyone gets notice of departureii. Have proof in writing they don’t want to hold out

iii. Publish in Ontario Gazette & amend partnership registration under OBNAiv. Have name removed from firm name & if it stays, make sure you get reliable updates from partners on

liability they’re incurring

f. What should person dealing with partnership do to assess creditworthiness? Ask who is currently a partner3. Risk Management in Partnerships

a. In small businesses, not so much of an issueb. Not many mechanisms to protect larger firms where partners rarely are involved in the full operations of the

business

Statutory References

P.A. ss. 6-19

C. Dissolution of the Partnership

Required Reading

VanDuzer pp. 66-68

1. Inherently fragile because its not a separate entity2. Unless partners agreed otherwise, partnership is terminated in following circumstances:

a. If for a fixed term, on expiry of term (OPA s.32(a))b. If not formed for a fixed term, on notice by one partner to all others (OPA ss 26 and 32(c))c. If formed for a single undertaking, on termination of that (OPA s. 32(b))d. On the death/insolvency of any partner (OPA s. 33(a))

3. These will usually be changed by agreement4. Termination occurs regardless if it beomes illegal for the business of the partnership to be carried on at all or illegal to be

carried on by the members of the partnership (OPA s. 34) (i.e. disbarment of all lawyers in a firm)5. Court may order dissolution on a variety of grounds (mental incapacity of a partner, persistent breaches of partnership

agreement, catch-all when its just & equitable)a. Have set a high standard for exercise of discretion to dissolve on last ground (just & equitable) -> maybe when

complete loss of trust & confidence so as to preclude any hope of progress6. S. 44 Ontario Act provides skeleton of process to wind up many claims:

a. Debts & liabilities to persons who aren’t partners paid 1st out of firm assets, then advances of partners, then capital is returned

b. If any assets still remain, distributed to partners in proportion to their claims to share in capital of firmc. Anything left of distributed to partners in accordance with their entitlement to profits

Statutory References

P.A. ss. 6-19

D. Partnership Agreements

Required Reading

VanDuzer pp. 68-76

1. Generala. Statutory provisions & case law provide only barebones/default positionb. Common for partners to flesh out position with partnership agreementsc. Main purposes:

i. Modify default provisions of statutory rules & fill in the blanksii. To address mandatory provisions of provincial partnership legislation (esp those providing for liability to

third parties)

iii. To reproduce existing provisions for partners information2. Selected Elements of Partnership Agreements & Commentary

a. Name: partnership may carry on business using any name it likesi. Ownership issues: often desirable for partnership agreement to address who is entitled to use firm name

in event there is a change in membership/dissolution of partnership (sometimes defaults to all partners); good way is if someone leaves, no one gets it

ii. Liability Issues: use of name with their knowledge constitutes holding out as a partner (liable to people dealing with firm after they leave; remaining partners should agree to indemnify)

1. Estate not liable after they leave so if they die & they continue to use name its okayiii. Registration Issues: under OBNA partners must register firm names; names that are the same or

deceptively similar to another person’s registered names can give rise to claimb. Description of Business: Makes clear what activities are considered to be carried on for benefit of partnership

i. may want to stipulate that business includes teaching a law school course so any fees are income of partnership -> makes clear fiduciary duty

ii. gives substance to partners’ non-competition obligation (helps define what competition is); many stipulate amount of time after (the length, area, and business is important for it to be enforced)

iii. protects from liability for things done outside course of business; allows for indemnity clausec. Membership of a Partnership

i. Admission of a new partner (default is it must be unanimous consent)1. Sometimes stipulate criteria for entry, or different voting system (proportionate on share value)2. Default position silent on how much capital they need to contribute

ii. expulsion of partner is prohibited under default rules, so many agreements provide for expulsion on vote of some specified majority

1. can say that expulsion mandatory on breach of partnership agreement or becoming incapable of working full time

2. should arrange how they are paid their share & how the partnership will survived. Capitalization: default is all partners share equally

i. How much is everyone putting in? what are the shares in which you hold the company?ii. May want to provide for the basis on which addition funds will be contributed (i.e. all must contribute

equally, etc.)iii. Circumstances for withdrawal of capitaliv. Default position is no interest paid on capital but are entitled to 5% on anything above what they originally

committed to advancee. Arrangements Regarding Profits and Their Distribution

i. Default: all divided equallyii. Can change it to reflect contributions such as:

1. Capital, billable hours, non-billable, fees billed & collected, total billings to new clients brought by partner, business development, etc

iii. Typically, partners permitted to draw against anticipated share of profits f. Management: default is that all partners entitled to participate in management, access to books, decisions on

ordinary matters by majority, but decisions relating to nature of partnership business require consent of alli. For larger companies decision making will become more spread out

ii. Important way to manage risk: restrictions on who may sign contracts & write cheques, authorization & reporting for certain activities

iii. Put safeguards for liability, if one partner ignores you may have claim for breach of contract & maybe grounds for dissolution

g. Dissolutioni. Default position makes it easy, lots of ways (see above)

ii. Dissolution on death/insolvency is one that’s usually excludediii. Usually don’t need unanimous consent for dissolutioniv. Sometimes dissolution precluded altogether, replaced by provision dealing with withdrawal of partners

C. Other Relationships

I. Joint Ventures

Required Reading

Casebook pp. 34-40

VanDuzer pp. 76-79

1. Not a distinct form of business organisation, no precise legal meaning2. Functionally, describes relationship among persons who agree to combine resources for some common purpose3. Usually agree to share profits & losses and each has some measure of control4. Distinguishing feature: limited purpose or limited time, or both5. Can be carried on through a corporation reflecting shares; through a partnership of by the parties together with rights &

obligations governed by contract6. Legal consequences of contractual nature are unclear

a. Central Mortgage & Housing Corp. v Graham suggests that in a joint venture with following characteristics, each of JV is responsible for all obligations (like a partnership):

i. Contribution by both parties of resourcesii. Joint interest in subject matter

iii. Mutual control & managementiv. Arrangement limited to one projectv. Expectation of profit

vi. Mutual sharing of profitb. Facts: party A provided financing & specifications for houses to be built by party B on party B’s land. When party C

buys a house, he assumes part of party B’s debt to party A. stops paying party A because of defects & party A forecloses. A countersues for damages on defect. Held it’s a joint venture, both liable.

c. This has never been overturned but has never been reproduced outside of Nova Scotia; usually because if those features are all present it will usually be found a partnership

7. Is fiduciary duty (can’t put individual interests ahead of that of JVs, can’t disclose confidential information)a. Wonsch Construction Co v Danzig Enterprises Ltd: party A incurred significant debt on JV, party B paid creditors

significantly less & sued party A for the full amount -> court held a fiduciary duty precluding attempt to profitb. Such a finding is rare however: will only be found where one party is vulnerable in some way (inequality of

bargaining power resulting in unfair agreement (Visagie v TVX Gold Inc)

Statutory References

P.A. ss. 2, 3, 32(b)

II. Limited Partnerships

Required Reading

Casebook pp. 41-51

VanDuzer pp. 79-86

1. Special vehicle designed to fulfil the needs of particular investors who want to share in profits but limit liability for losses2. Usually limited partners not interested in management3. In Ontario, governed by Limited Partnerships Act (OLPA) and where silent, the OPA4. Must have at least one general partner (unlimited personal liability)5. Declaration must be file with registrar (OLPA s. 3): expires after five years unless renewed (expiry doesn’t terminate just

costs more to renew)

6. Does not have separate legal existence7. General partner is same as in normal partnership + a couple constraints to protect limited partner8. Limited partner have narrowly defined rights & liability is limited to extent of their contributions

a. Have right to share in profits & have contributions returns (OLPA ss. 8-11)b. Inspect books & make copiesc. Get full & true info regarding limited partnerships & complete account of affairsd. Obtain dissolution by court ordere. Can transact business with the partnership (lend it money) and can be an employee

9. Limited partner can’t receive anything if its insolvent and can’t hold security interest in its assets10. Management very limited

a. Can enquire & advise but if they ‘take part in control of business’ or allows name to be used in firm name, loses limited liability

b. This is a fine line; sometimes general partner is corporation and limited partner is officer/employee -> when does this result in loss of limited liability?

i. Haughton Graphic Ltd v Zivot: A was limited partner in limited partnership & substantial shareholder & president of corporation of corporate general partner -> held he was personally liable

1. any time limited partner was employee, officer, or director & took part in control of business, he’s personally liable

2. very broad, disregards separate existence of corporation3. has not been followed in subsequent cases

ii. Nordile Holdings Ltd v Breckenridge: held that where limited partner acted only in capacity as director & officer of corporate general partner, they’re not liable as general partners

1. Perhaps difference is that in Haughton, he was substantial shareholder & controlled company that way

11. Interest is transferable, but only if all partners consent or if its in accordance with partnership agreement12. Has right to receive repayment of investment in these circumstances:

a. Dissolution of limited partnershipb. At time specified in partnership agreementc. On six months’ notice, if no time is specified in the partnership agreementd. On unanimous consent of all partners

13. No return if there are not enough assets to pay claims of all creditors (OLPA s. 15(2))14. Dissolution occurs in same circumstances as for a general partnership: death incompetence, retirement of general partner,

unless at leats one general partner remainsa. Limited partner entitled to have limited partnership dissolved if:

i. The limited partner’s contribution is not returned when it is required to be ORii. The liabilities of the limited partnership are not paid/assets of LP are not enough to pay liabilities

b. Declaration of dissolution must be filed c. Can be under court order too

15. Person can be both general & limited partner (still have unlimited liability but it may give you more share in assets)16. LPs registered in one province must register if they carry on business in another (subject to penalties otherwise); however,

they don’t lose their limited liability if they fail to register17. Tax Effects

a. One of most common reasons for investing in LPs is to receive share of tax losses generated by LP business (can offset tax incomes from other sources)

b. Government encourages investment in certain industries by allowing certain industries to write off more CCA (capital cost allowance -> amount every year you write as a ‘loss’ on depreciating equipment) than others

Statutory References

Limited Partnerships Act RSO 1990, c. L. 16, ss. 2-18, 21,22, 24-6, 32.

III. Limited Liability Partnerships

Required Reading

Casebook pp. 51-53

VanDuzer pp. 63-66

4. Limited Liability Partnerships for Professionalsa. Professionals can’t form corporations but many provinces including Ontario have recently amended partnership

laws over the past few years to allow certain types (law, accountancy, etc) of limited liability partnershipsb. Alberta

i. In this set up, individual partners are not personally liable for ‘negligence, wrongful acts or omissions, malpractice or misconduct’ of their partners or of employees/agents UNLESS:

1. Wrong was committed by someone under partner’s supervision & they failed to provide adequate supervision OR

2. Partner knew of the act/omission & failed to take reasonable steps to prevent itii. However, the firm still remains liable & partners remain liable for their own negligence

iii. All partners remain liable for obligations other than negligence & listed wrongsiv. This is followed in Manitoba, Quebec & NS

c. Ontario: individual partner not liable for “debts, obligations & liabilities” of partnership or any partner arising out of negligent/wrongful acts or omissions that another partner/employee/agent/rep commits in course of partnership business (OPA s. 10(2)) or any other “debts/obligations” of the parternship

i. Still liable for own wrongful act/omission, doesn’t apply to actions of a person under partner’s general supervision

ii. May still be liable in circumstances:1. The act/omission of partner/employee is criminal/constitutes fraud OR2. Partner knew/ought to have known of act/omission & did not take actions that a reasonably

prudent person would have taken to prevent it3. Claims related to their partnership obligation (OPA s. 10(3.1))

iii. Firm still remains liabled. Requirements to become a LLP in Ontario:

i. Sign an agreement designating partnership an LLPii. Business of partnership is practice of a profession governed by a statute which permits LLP to practice the

professioniii. Governing body of profession required a minimum amount of liability insuranceiv. Partnership is registered under Business Names Actv. Partnership name contains word LLP or limited liability partnerships

5. Most law & accounting firms in these jurisdictions are LLPs now

Statutory References

P.A. ss. 10, 44.1-44.4