Legal Studies 3050

Section 1: Starting a Small Business

Partnerships

A partnership is another popular form of business ownership. A partnership is formed when two or more people decide to combine their money and other resources to invest in a business. In Alberta, a partnership may have from 2 to 20 members; if there are more than 20 they must register as a limited company. Persons who have entered into a partnership with one another are called a firm , but the firm name is only a short way of expressing the names of all the partners. The firm itself has no separate legal existence. Every partner is jointly liable with the other partners for all the debts and obligations of the firm that are incurred while they are partners.

Partnerships are found in just about every type of business or profession. These include retail stores, service businesses, medical and dental clinics - just to name a few. One reason an individual might choose to seek a partner is that setting up a business may require more capital than they have or can borrow. Furthermore, partners have the ability to combine their skills and experience to create a successful team.

It is not necessary for each partner to contribute money to the business; some may contribute cash, but others may contribute such things as goods, labour, or some particular skill or knowledge. For instance, an individual may enjoy meeting people and selling the product, but is not a strong administrator. Their partner, on the other hand, may know little about finding customers and making sales, but finds satisfaction in organizing and managing the day-to-day operation of the business. There is considerable freedom of action in operating as a partnership. It is possible to have informal meetings and make quick decisions on current problems on short notice.

Individuals may wish to invest some money in a firm, but at the same time may not want to be liable for more than the amount invested.

Where the above mentioned terms have not been specifically agreed upon, the Partnership Act provides for the following rules to take effect:

  • The partners are entitled to share equally in the profits and capital of the business and must contribute equally towards losses. This rule applies even though the original investments of the partners were not equal.

  • The firm must repay partners for any personal payments they make or personal liabilities incurred by them during the normal and proper conduct of the business.

  • Every general partner may take part in the management of the business.

  • Partners are not legally entitled to receive a salary for acting as partners. The remuneration which partners receive is deducted from their share of the profits.

  • No person may be introduced as a new partner without the consent of all the existing partners. Where no fixed term for the duration of the partnership has been agreed upon, any partner may terminate the partnership by giving notice to do so to all the other partners.

  • If partners, without the consent of the other partners, carry on any business in direct competition with that carried out by the partnership, they must account for and pay over to the firm all profits made by them in the alternate business.