Partnership Agreements for Ontario Businesses

What is a Partnership Agreement?

A Partnership Agreement is a legally binding document between two or more business partners who agree to manage and operate a business together. It outlines the partners' respective rights, duties, and obligations. Without a properly drafted partnership agreement, general rules under the Partnership Act, RSO 1990, c P.5 will apply — often leading to unintended consequences.

Illustration: Imagine you and a friend start a landscaping business. You invest $50,000; your friend invests $10,000 and promises to contribute more time. Without a written partnership agreement format, you may both be considered equal partners, despite the difference in capital contributions— leading to disputes about the share of the partnership and division of profits.

A well-drafted business partnership agreement clarifies ownership, roles, dispute resolution methods, and the procedure to dissolve the partnership. Think of it as a roadmap to navigate your business journey.

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Why is a Partnership Agreement Important?

Starting a business with a partner is exciting, but without clear terms in place, it can quickly turn complicated. Priorities can shift, conflicts can arise, and unexpected events like the death of a partner or financial challenges can throw everything off track. A well-drafted partnership agreement format ensures that everyone understands their contributions, roles, and how profits and losses will be handled right from the start. It helps prevent disputes over management and finances, protects personal assets — especially in a limited liability partnership or general partnership — and provides a clear path for bringing in new partners or handling a partner’s departure. Simply put, it’s not just paperwork; it’s the foundation that keeps your business strong and your relationships intact.

In Tim Ludwig Professional Corp v. BDO Canada LLP, 2017 ONCA 292, the Ontario Court of Appeal upheld a decision awarding over $1.3 million in damages to a partner who was wrongfully expelled from a firm. The court found that the expulsion breached the partnership agreement and the duty of good faith owed among partners. Well-drafted partnership agreements require strict compliance because failure to do so can result in both financial damages and costly conflicts.

Types of Partnerships Agreement We Cover

• General Partnership (GP) – All partners share equal responsibility for debts and liabilities.
• Limited Partnership (LP) – Includes general partners, who run the business, and limited partners, whose liability is restricted.
• Limited Liability Partnership (LLP) – Often used by professionals such as lawyers and accountants, as it provides liability protection.

Key Elements of a Strong Partnership Agreement

A properly drafted co-partnership agreement serves as the legal GPS system which protects a business by offering directions that prevent obstacles and lead partners to their predetermined destinations. Every successful company partnership requires these essential provisions within its agreement to maintain clarity, along with fairness throughout operation and long-lasting success:

1. Capital Contributions

Every partner contributes something valuable to the business, whether it’s capital, equipment, intellectual property, or services. Clearly outlining each party’s capital contributions avoids future misunderstandings and helps determine the ownership percentage and profit-sharing model. Disputes often arise when one partner feels they’re contributing more while others are reaping equal benefits. Specifying contributions upfront prevents this.

Example Clause: “Partner A shall contribute $50,000 in capital. Partner B shall contribute computer hardware valued at $30,000 and commit 20 hours/week of unpaid consulting services.”

Contributions should be documented with dates, methods of valuation (especially for non-monetary items), and whether they are refundable upon dissolution of the partnership.

2. Ownership Percentage

The ownership percentage doesn’t always align with capital contributions— and it doesn’t have to. One partner may contribute more capital, while another brings industry expertise or client relationships. Your partnership agreement format should clarify the ownership split to avoid future resentment or confusion.

Example: Partner A provides 70% of the capital but agrees to a 60% stake to recognize Partner B’s business development role. This hybrid equity structure must be clearly written.

Ownership percentage often affects voting power, access to information, and profits and losses—so it must align with your business goals.

3. Profits and Losses

Decide how your business will divide profits and losses — equally, based on ownership, or using another formula (e.g., performance-based or milestone-based). Under Ontario’s Partnership Act, in the absence of a specific agreement, profits are presumed to be shared equally, regardless of contribution— which may not reflect the partners' expectations.

In Anthony v. Binscarth Holdings GP Inc., 2025 ONCA 130, the limited partners of a family-run limited partnership contested the general partner's discretion over profit distributions. The Ontario Court of Appeal established that limited partners under the Limited Partnerships Act can receive partnership profits, yet need specified cash distribution terms to obtain funds from the partnership agreement. The court underlined the need for specific profit-sharing terms because such terms protect both parties from future conflicts.

4. Roles and Responsibilities

Who is responsible for what? The part discusses specific roles and responsibilities that partners must fulfill during normal operations and strategic planning. Clear accountability requires the prevention of micromanagement in order to function well. Operational systems are likely to fail due to confusion when joint partners duplicate responsibilities or leave unorganized tasks. The organization operates smoothly through a breakdown of functional roles.

Learn More: Joint Venture v. Partnership Agreement

Illustration: In a tech start-up, one partner handles coding and development, while the other manages fundraising and client acquisition. These roles — and the expectations around time commitment and deliverables — are defined in the partnership agreement.

5. Decision-Making

Every partnership has the potential for disagreement, regardless of its strong connection. Your business will operate more efficiently through a well-established process for making decisions that handles every level of business decisions effectively.

Considerations:

Are votes equal or weighted by ownership?

What’s the threshold for major decisions (e.g., a supermajority of 75%)?

Who handles tie-breaking?

Example: Purchasing equipment below $10,000 may require one signature, while changing the business model requires unanimous consent.

Decision-making rules can differ for day-to-day operations vs. strategic decisions like selling the company or taking on new partners.

6. Dispute Resolution

No matter how strong the bond, business partners can face disagreements. A clear dispute resolution clause can help resolve issues privately and efficiently, preserving the business and the relationship.

Best Practices:

Start with negotiation → Mediation → Binding Arbitration.

Designate a third-party arbitrator or mediation service in advance

Choose applicable law (Ontario) and venue (e.g., Toronto)

Going to court can drain your finances and reputation. Alternative dispute resolution can keep matters confidential and quick.

7. Death or Departure of a Partner

Life is unpredictable. Your company partnership agreement must account for the death of a partner, incapacitation, retirement, or voluntary exit. Key provisions to include:

Buy-Sell Clause: Defines how remaining partners can buy the departing partner’s interest

Valuation Method: Fixed formula, third-party appraisal, or agreed value

Timeframe: When must the transfer be completed?

Illustration: Three friends start a print shop. When one unexpectedly passes away, their family assumes control of their share. Without a buy-out clause, the remaining partners lose control of key business decisions. A clear succession plan would have prevented this.

8. Dissolution of the Partnership

At some point, your business partnership may come to an end. Planning the process of dissolving the partnership ensures a fair and peaceful exit.

Include clauses on:

What triggers dissolution (e.g., loss of license, bankruptcy, prolonged dispute)?

How to divide assets and liabilities?

How much notice must be given?

Set up a winding-up procedure in advance, including handling of business name deregistration, creditor notifications, and employee termination.

9. Non-Compete and Confidentiality

Even after a partner leaves, your business remains vulnerable if confidential information or client relationships are exposed to competitors. These clauses provide long-term protection.

Non-Compete: Prohibit ex-partners from starting a similar business within a defined geographical radius and time period.

Non-Solicitation: Prevent poaching of clients, staff, or suppliers.

Confidentiality: Maintain secrecy of trade secrets, pricing models, and sensitive business plans.

In Dr. C. Sims Dentistry Professional Corporation v. Cooke, 2024 ONCA 388, the Ontario Court of Appeal upheld a non-compete clause in a business sale agreement, emphasizing that such clauses, when negotiated as part of a business sale, are presumed valid unless proven unreasonable. The court highlighted that parties negotiating the sale of a business are best placed to determine what is reasonably required to protect the purchaser’s interest in the goodwill. This case underscores that enforceable non-compete clauses and confidentiality provisions must be included in partnership agreements because they serve to protect business interests.

Each of these elements not only strengthens your partnership agreement but also reflects sound legal and commercial judgment. With help from Pacific Legal, you don’t just get a generic template — you get a customized agreement that is legally enforceable, commercially sensible, and future-ready.

Drafting a Partnership Agreement: How Pacific Legal Excels

Creating a partnership agreement isn’t a one-size-fits-all task. It requires careful attention to detail, an understanding of your business goals, and expertise in Ontario partnership laws.

At Pacific Legal, we understand that your business is unique— and your partnership agreement should be too.

The process of developing partnership agreements follows no specific guide. The development of a partnership agreement demands thorough attention, together with an understanding of business objectives and knowledge of Ontario partnership law requirements.

Pacific Legal understands each business has individuality, which demands a customized partnership agreement structure

Here’s How Pacific Legal makes a difference:

1. Tailored Solutions

We don’t rely on generic partnership agreement examples found online. Every business is unique— and so is every agreement we draft. Our team takes the time to understand your industry, structure, and goals to deliver an agreement that reflects your reality.

2. Legal Precision

We ensure your partnership agreement format is legally sound and anticipates real-world challenges. Our experience with Ontario’s Partnership Act and relevant case law means your agreement is built for strength and enforceability.

3. Transparent Communication

We work with you collaboratively so that every partner knows exactly what they are signing. Clarity builds trust, and we make sure all terms are explained in plain language— not just legal jargon.

4. Future-Proof Agreements

We plan for changes in business operations, potential disputes, and future expansion. From capital contributions to the death of a partner, your agreement will evolve with your business, not hold it back.

In McCormick v. Fasken Martineau DuMoulin LLP, 2014 SCC 39, the Supreme Court of Canada explained that partnership agreements need well-defined terms to prevent future disputes and ensure legal enforceability. The Supreme Court stressed that partnerships must contain specific terms about dissolution and dispute settlement in order to prevent upcoming legal battles.

Why Your Business Needs a Partnership Agreement

A well-structured partnership agreement helps your business avoid unexpected challenges that may arise when there is no business partnership agreement. It:

• Prevents Legal Disputes – Specifies each partner's rights and obligations.
• Protects Investments – Guarantees financial transparency and security for all partners.
• Defines Decision-Making Authority – No more arguments over management and business operations.
• Ensures Legal Compliance – Align your partnership with Ontario business laws.
• Attracts Investors – Demonstrates a structured, legally sound business framework.

When partners fail to establish a written partnership agreement, they may be forced to share profits equally despite differences in capital contribution amounts. The absence of a written partnership agreement can cause business decisions to result in either complete disagreement or partnership dissolution. The absence of clear terms between partners potentially leads to the exposure of personal liability regarding business debts. Lack of an agreed-upon dissolution process and procedure for the death of a partner would create uncertainty for both businesses and their stakeholders.

Illustration: Two friends opened a design agency without any co-partnership agreement. When one wanted to leave, there was no agreement on how to value their share. A court battle ensued, draining time and money.

Why Choose Pacific Legal for Your Partnership Agreement?

At Pacific Legal, we make sure your business partnership agreement is customized according to your requirements and legally binding.

• Custom Legal Solutions – We draft agreements that meet your needs and objectives for your business.
• Expert Legal Advice – Our lawyers stay on top of Ontario partnership legislation.
• Legally Enforceable Contracts – Strengthen your business with well-defined, enforceable agreements.
• Virtual & Accessible Services – Seek expert help remotely in Ontario.

Protect Your Business with a Customized Partnership Agreement

Your partnership deserves a strong legal foundation. Don’t risk misunderstandings, disputes, or financial losses. Protect your dreams with a bulletproof partnership agreement crafted by the experts at Pacific Legal.

If You're Looking for a Partnership Agreement, Pacific Legal Is Here for You

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