General Partnership in Canada: A Comprehensive Overview

A general partnership is the simplest way for two or more people or companies to run a business together. There's no incorporation and no separate tax return for the business itself. The trade-off is that every partner is personally liable for all of the partnership's debts. This guide explains how general partnerships work in Canada, how to register one, and how they're taxed.

General partnership at a glance

What is a general partnership?

A general partnership exists when two or more persons carry on a business together with a view to profit. The partners can be individuals, corporations or both. Provincial partnership acts govern the relationship, and many of their default rules (such as equal profit sharing) apply unless the partners agree otherwise in writing.

A partnership can arise simply from how people behave. If you and someone else run a business together and share profits, the law may treat you as partners even with no signed agreement.

Advantages of a general partnership

• Simple and cheap to start: no articles of incorporation and modest registration fees.
• Pass-through taxation: profits and losses flow to the partners, who can use early-year losses against other income.
• Flexibility: partners decide how to split profits, duties and decision-making.
• Fewer filings: no corporate annual return or T2 corporate tax return.

Drawbacks of a general partnership

• Unlimited personal liability: each partner can be pursued for all of the partnership's debts, including those caused by another partner acting in the business.
• No tax deferral: profits are taxed at the partners' personal rates in the year they're earned, even if left in the business.
• Continuity risk: a partner leaving or dying can end the partnership unless the agreement provides otherwise.
• Harder to raise capital than a corporation, which can issue shares.

If liability is a concern, compare a limited partnership, a limited liability partnership (for eligible professions) or incorporation.

Steps to form a general partnership in Canada

1. Sign a partnership agreement

Set out each partner's contribution, profit and loss shares, management and voting, how decisions are made, what happens when a partner leaves, dies or wants out, and how disputes are resolved. Without an agreement, the provincial act's defaults apply.

2. Choose and register the business name

If the partnership operates under any name other than the partners' own names, register it in the province. In Ontario, registering a general partnership name costs $60 and must be renewed every five years. A partnership name must not include Ltd., Inc. or Corp.

3. Get a Business Number and tax accounts

Register the partnership with the CRA for a Business Number, plus GST/HST once taxable revenue passes $30,000 over four consecutive quarters, and payroll if you'll have employees.

4. Open a partnership bank account

Keep partnership money separate from each partner's personal finances. Banks will typically ask for the registration, the agreement and ID for each partner.

5. Register in other provinces if needed

If the partnership carries on business in another province, register its name there as well.

How general partnerships are taxed

A general partnership doesn't pay income tax itself. Its income or loss is calculated at the partnership level, then allocated to the partners, who report their shares on their own returns: individuals on the T1, corporate partners on the T2.

The partnership must file a T5013 Partnership Information Return if, at the end of its fiscal period, the absolute value of its revenues plus the absolute value of its expenses is more than $2 million, or it has more than $5 million in assets, or other CRA conditions apply (for example, certain tiered partnerships, or partnerships with a corporation or trust as a partner). Keep complete records either way: the CRA can ask for a return at any time.