Partnership

 

A Partnership is also an unincorporated business.  It is similar to a proprietorship, except two or more entities are partners in the business.  For partners who are individuals, the income from the partnership is taxed at personal income tax rates, and a percentage of the income is included on the personal income tax return of each owner.

 

Advantages:

 

Business losses can be written off against other income of the partners.

 

A partnership is less regulated than a corporation.  A partnership agreement should be drawn up to outline the terms of the partnership, what happens in the event of a dissolution, and what happens in the event of disagreements among partners.  In the absence of an agreement, or if certain provisions are not addressed in the agreement, provincial or territorial laws will determine some or all of the terms of the partnership.

 

To setup a partnership the cost is relatively low.

 

Disadvantage:

 

The biggest disadvantage of a partnership is unlimited liability.  The partners are jointly liable for all debts and other liabilities of the business.  If the business is sued, all the business and personal assets of the partners are at risk.  An exception to this is a Limited Partnership.  Limited Partners, who contribute capital but do not participate in the management of the business, will have their liability limited to the amount of capital that they have contributed.  The partners who participate in the management of the business are called General Partners, and will still have unlimited liability.

 

The death or retirement of a partner will not end the partner's liability for debts and obligations of the partnership that were incurred prior to the death or retirement.  Also, if a partner retires and does not make the retirement publicly known, he/she could still be held liable for obligations incurred by the partnership after the retirement.

 

The net profit at years end must be declared appropriately in that persons’ taxes and in whatever margin of tax for that year based on their personal income. There is no flat tax system like a Corporation.