Is a General or Limited Partnership Right for You?

Posted: February 10, 2010 | Last Updated: February 06, 2016

Posted: February 10, 2010

Written by: Brant Harvey

Partnership is the term used to describe the business relationship between persons (which includes individuals and corporations) who carry on a business with a view to profit.  Partnerships are a popular and effective investment vehicle as they allow the partners to combine their individual talents, skills, and resources in a common business interest. 

In Manitoba, The Partnership Act (the “Act“) governs how partnerships are formed, registered, and dissolved.  The Act also outlines who is responsible for the repayment of the liabilities of the partnership, and describes the duties owed by the partners of the partnership. 

There are two main types of partnerships in Manitoba.  The first type is a general partnership.  The essential features of a general partnership are that each partner is jointly and severally liable for all the debts of the partnership that have been incurred while they were a partner, and each partner acts as the agent of the partnership in carrying on the business.

The second type of partnership is a limited partnership.  A limited partnership has one (or more) person who acts as the general partner of the partnership and one (or more) person who is the limited partner of the partnership.  Under the Act, a limited partner is a person who contributes a specific amount of capital (i.e. money) to the partnership and their liability is generally restricted to the amount of capital that the limited partner contributes.  Another essential feature of a limited partnership is that only the general partner is authorized to bind the partnership and carry on the business of the partnership.  The limited partner is entitled to examine and monitor the growth of the partnership, but if the limited partner takes a more active role in the operation of  the partnership, they run the risk of losing their status as a limited partner, and  may in turn be liable for all of the obligations of the limited partnership as if they were a general partner.  Finally, some of the key advantages of a limited partnership are potential limited liability for the limited partner, and certain income tax advantages similar to those of an incorporated company.

Regardless of the type of partnership chosen, it is crucial to have a well crafted and detailed partnership agreement in place.   Stay tuned for another posting on partnership agreements.