Nicolas Guevara-Mann | Queen’s Business Law Clinic | October 2021
Editor: Mikela Page
As noted in last week’s blog, partnerships can exist with or without a partnership agreement. However, having a partnership agreement serves several important functions: It provides certainty that a partnership does in fact exist and it allows the partners to deviate from the default partnership rules that are outlined in the Partnerships Act.
By default, all partners must equally share the profits of the business. A partnership agreement can vary this default rule so that each party receives a different division of income (for example, a 50/30/20 split). Other default rules that can be renegotiated through a partnership agreement include:
- Whether business decisions will be made by a consensus of the partners,
- Whether losses will be borne equally by all the partners,
- Whether each partner will contribute equally to the partnership, and
- Whether existing partners may leave/be expelled, and whether new members may join the partnership.
At the same time, there are mandatory rules that cannot be altered by way of a partnership agreement. A partnership agreement strictly governs the relationship between partners and not the partnership’s relationship with third parties. Thus, the agency relationship between partners cannot be disposed of. This means partners will always be able to bind each other to contracts with third parties and all partners will be jointly liable for the debts, obligations, and liabilities of another partner. While a partnership agreement may split the losses of the partnership in the manner agreed upon by the partners, a third party seeking to recover its debt from the partnership or from an individual partner enjoys this benefit of joint liability. The third party will be able to choose to recover from one or all the partners personally to recover their money.
Similarly, partnership agreements cannot protect the partnership from third party tort liability.
The QBLC can assist you in drafting a partnership agreement and help you tailor the rules of the partnership to your specific circumstances.
Photo by Alexander Suhorucov from Pexels
Disclaimer: The contents of this blog are provided for information purposes only and do not constitute legal or professional advice or an opinion of any kind. Information found on this blog may not constitute the most up-to-date legal or other information. QBLC does not warrant or guarantee the quality, accuracy or completeness of any information on the articles published on this blog. The articles published on this blog are current as of their original date of publication, but should not be relied upon as accurate, timely or fit for any particular purpose.
This blog may contain links to other third-party websites or resources. Such links are only for the convenience of the reader, user or the browser. The QBLC does not recommend or endorse the contents of the linked third-party sites nor guarantee its accuracy, timeliness or fitness for a particular purpose.
Readers of this blog are advised to speak with a qualified lawyer in order to obtain advice with respect to any particular legal matter. No reader, user or browser of this blog should act or refrain from acting on the basis of the information contained in this blog without first seeking legal advice from a qualified lawyer in the relevant jurisdiction. Please note that only your lawyer can provide any assurances that the information contained here, and your interpretation of it, is correct and applies to your particular situation.
Also note that the use of, and access to this blog or any of the links or resources contained in it do not create a lawyer-client relationship between the reader, user or browser and the QBLC, the blog authors, contributors, editors and their respective employers/organizations. The views expressed on or through this blog are those of the individual authors and not those of their respective organizations and employers. All liability with respect to actions taken or not taken based on the contents of this site are hereby expressly disclaimed.