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Legal Guide

In addition to the corporation, other forms of business organization may be used as vehicles to carry on business in Canada, some of which are briefly discussed below.

Sole proprietorships

A sole proprietorship exists where an individual is the sole owner of a business and there is no other form of business organization, such as a corporation, used as a vehicle to carry on the business.

All benefits gained and all obligations incurred from the sole proprietorship accrue to the sole proprietor. All income and losses of the proprietorship accrue to the individual and are taxed at the tax rate applicable to the individual. In contrast with the limited liability of shareholders of a corporation, there is no limited liability for sole proprietorships. The personal assets of the sole proprietor may be seized to satisfy any obligations of the proprietorship.

The sole proprietorship is a simple arrangement for carrying on business. There are few legal formalities required to create or operate a sole proprietorship. Before beginning to carry on a business as a sole proprietorship, attention should be given to any federal, provincial or municipal licensing requirements. In addition, a sole proprietor who engages in certain businesses in British Columbia, or in any business in Alberta, Ontario or Quebec, using a name or designation other than the individual’s own name, must register a declaration in prescribed form with the relevant government authority.


In British Columbia, Alberta, Ontario and Quebec, general partnerships and limited partnerships may be formed to carry on a business enterprise. In a general partnership, the liability of each of the partners is unlimited. In a limited partnership, the liability of one or more of the partners (general partners) is unlimited, and the liability of one or more of the partners (limited partners) is limited to the amount that the limited partner contributes (and, additionally in British Columbia and Quebec, and alternatively in Alberta, the amount the limited partner agrees to contribute) to the business of the partnership. A contribution may be one of money or property, but not services.

Generally, for both limited and general partnerships, the income or losses of the partnership are determined, for income tax purposes, at the partnership level and then allocated to the members of the partnership. The income or losses are then taxable in the hands of the partners.

  1. A.     General Partnerships

To be considered a general partnership, there must be a relation between persons carrying on a business in common (which can be in the nature of an ongoing business or a specific transaction) with a view to profit (which excludes charitable and cultural organizations). The relation between the persons may be established by written or verbal agreement, or be implied by the circumstances.

A general partnership carries on business under a firm name and can sue or be sued under the firm name. Much like a sole proprietorship, the business is carried on directly by the partners and a partnership does not form a separate legal entity. However, for certain purposes, a partnership is treated as a unit. All property contributed by the partners, or purchased by a partnership, becomes partnership property. All partners in a partnership are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, unless otherwise agreed by the partners. Each of the British Columbia Partnership Act, the Partnership Act (Alberta), the Ontario Partnerships Act and the Civil Code of Québec, permits partners to vary a set of statutorily prescribed mutual rights and duties, such as the sharing of profits and losses, by express or implied agreement. Each Act also provides a framework to govern the relationship of partners and third parties (which may not be varied by agreement).

In a general partnership, each partner is jointly liable with the other partners to the full extent of the partner’s personal assets. The estate of a deceased partner remains liable for partnership debts incurred when the partner was alive. However, a partner can be discharged from a partnership by an agreement and will not thereafter be responsible for debts incurred after the signing of such an agreement. General partnerships created under the laws of Quebec or carrying on business in Quebec are bound in law to file a declaration of registration in the prescribed form with the Registraire des entreprises.

  1. B.     Limited partnerships

In British Columbia, Alberta and Ontario, a limited partnership is created by complying with the relevant provisions of the applicable partnership legislation, and is governed by that legislation and general partnership law. In Quebec, a limited partnership is created by complying with the relevant provisions of the Civil Code of Québec. The limited partnership must consist of one or more general partners, and one or more limited partners. One person can be both a general and a limited partner. A “person” includes an individual, a sole proprietor, a partnership and a corporation.

A limited partner is much like a passive investor in a corporation, sharing the profits of the limited partnership in proportion to the contribution made by the partner. This form of partnership is used primarily for public financing where passive investors are involved, and it is desirable for profits and losses to flow through to the investors. It is also used by investors that are non-taxable entities, such as government-related agencies (e.g. some public utilities or provincial development agencies), where the investor wishes to avoid holding its investment in a company that is required to pay taxes before distributing its income to its shareholders.

In Ontario, a limited partner may give advice to the partnership, or act as an agent or employee of the limited partnership. However, in each of British Columbia, Alberta, Ontario and Quebec, if the limited partner takes part in the control or management of the business, then the partner will no longer be considered a limited partner and will be subject to the unlimited liability of a general partner.

Generally, the interest of a limited partner is assignable if all the partners consent to the assignment or if the partnership agreement permits it.

General partners in a limited partnership have the same rights and obligations as in general partnerships, except that certain actions of the general partner may require the prior consent of the limited partners. It is common to have a corporation as the general partner because of the limited liability feature of the corporation.

In British Columbia, Alberta and Ontario, a limited partnership is only legally created when a declaration or certificate in prescribed form, signed by all of the general partners (and in Alberta, all of the limited partners), is filed with the relevant registrar. In Quebec, the partnership is created upon the formation of the contract, if no other date is indicated in the contract, and the partnership must file a declaration in prescribed form with the Registraire des entreprises. In British Columbia, the certificate includes the name of the partnership, the nature of the business of the limited partnership, the term for which it is to exist, the full name and address of each general partner, the aggregate amount of cash and property contributed and agreed to be contributed by all of the limited partners, and the basis on which limited partners are to be entitled to share profits or receive other compensation. In Alberta, the certificate states the following: the firm name, the character of the business, the name and address of each partner (and whether they are a general or limited partner), the term for which the partnership is to exist and certain other details of the structure of the partnership. In Ontario, the declaration states the name of the limited partnership, the name and address of each general partner and the general nature of the business of the limited partnership. In Quebec, the declaration states, among other things, the object of the partnership, the name and domicile of each of the known partners at the time the contract is entered into, the place where the register containing up-to-date information on the name and domicile of each limited partner, and all information relating to the contributions of the partners to the common stock, may be consulted. The declaration also distinguishes between general and limited partners.

Joint ventures

A joint venture is not a specific type of business organization but rather, it is more aptly described as an association of two or more individuals, corporations or partnerships, or some combination of these, for the purpose of carrying on a single undertaking or a specific business venture. A joint venture may take the form of a partnership, a limited partnership, a co-ownership of property or a corporation. Generally, the parties to a joint venture will enter into a written agreement (whether a partnership agreement, a limited partnership agreement, a co-ownership agreement or a shareholders’ agreement) which establishes the respective rights and obligations of the parties in respect of the venture.

Canadian distributors and selling agents

A foreign organization can enter into contracts to supply goods or services to Canadians without being considered to be carrying on business in Canada. The distinction is sometimes referred to as “doing business with Canada,” as opposed to “doing business in Canada”. This can also extend to a long-term distributorship arrangement under which a Canadian individual or corporation markets the products of a foreign business in Canada, either on an exclusive or non-exclusive basis. In this way, a foreign business can have an independent sales representative organization in Canada without being liable to Canadian income tax on its profits from such sales. For more information concerning the income tax consequences of such activity, see the discussion below in the section entitled “Income tax considerations”.

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