Partnerships
Author | J. Anthony Van Duzer |
Pages | 28-95 |
28
CHAPTER 2
PA RTNE R SHIPS
A. INTRODUCTION
As discus sed in Chapter 1, partnership is a legal relationship that ex ists
between two or more people carry ing on business together. This chapter
expands on the introductory discussion of partnerships in Chapter 1,
beginning with a more detailed examination of what a partnership is
and when it will be found to exist. The next section turns to the rules
that govern the internal relations between partners, followed by a dis-
cussion of the rules applicable to the relat ionships that partners have to
outsiders, like creditors. These latter rules determine when a partner-
ship and its partners are liable to creditors and other outsiders. Then
some of the considerations relevant to draft ing partnership agreements
are presented. Agreements between partners supplement and often
replace the rules that govern partners’ internal relations and address
some of the liability risks created by the rules that deal with when
partnerships are liable to outsiders. Limited partnerships a nd joint ven-
tures are considered at the end of this chapter.1
1 For a more detailed di scussion of partnersh ip law, see Alison R Ma nzer, A Prac-
tical Guide to Cana dian Partnership Law (Aurora, ON: Canada L aw Book, 1994)
(loose-leaf ) [Manzer] and Darcy MacPherson & Sun ita Doobay, 2014 Annotated
Ontario Partne rships Act (Toronto: Carswell, 2014).
Partnerships 29
B. WHAT IS A PARTNERSHIP?
1) Partnership Law
Partnership law determines when a partnership is created and the re-
sulting legal consequences. Originally, partnership law developed as
part of the English common law. In a common law system, the law
in areas not governed by statute consists of the accumulation of rules
made in judicial decisions. Once a r ule is applied in a particular case, it
becomes a precedent: all courts are bound to decide subsequent cases
in a manner consistent w ith this rule.2 The application of the rule from
the precedent to different facts in subse quent cases clar ifies and refines
the rule. As a result of this binding character of precedent cases, it is
often said that common law is made by judges.3
Prior to the enactment of part nership legislation, the English courts,
in deciding individual cases, developed rules to determine when a part-
nership existed and what its legal consequences were. In the late nine-
teenth century, these judge-made rules for partnerships were codified
in the English Partnerships Act of 18 90.
In Canada, the provinces have constitutional jurisdiction to en-
act laws regulating partnerships under section 92(13) of the Constitu-
tion Act, 1867, which gives them jurisdiction in relation to “Property
and Civil Rights.” All the provinces except Quebec are common law
jurisdictions, like the United Kingdom, and all have enacted statutory
regimes based closely on the English Partnerships Act of 1890.4 These
statutes address (1) the formation and nature of partnerships, (2) the
relationship between partners and persons dealing with partnerships,
(3) the relationship of partners to each other, and (4) dissolution of
partnerships. Few changes have been made to these provincial statutes
2 To be precise, only court s lower in the hierarchy tha n the court rendering a
decision are bound t o follow the decision. So, for example, a decis ion of the
Ontario Cour t of Appeal is binding on the O ntario Superior Court of Just ice,
but not on the Supreme Court of Can ada.
3 It is sometimes sa id that judges “discover” the common l aw. On the common
law system gener ally, see S Waddams, Introduction to the Study of L aw, 8th ed
(Toronto: Carswell, 2016) at 71–86.
4 See, for example, Ont ario Partnerships Act, RSO 1990, c P.5 [OPA]; Alberta Partner-
ship Act, RSA 2000, c P-3 [APA]; Briti sh Columbia Partnership Act, RSBC 1996, c
348 [BCPA]; Nova Scoti a Partnership Act, R SNS 1989, c 334 [NSPA]; Saskatch-
ewan Partnership Act, R SS 1978, c P-3 [SPA]; Manitoba Partnership Act, CCSM c
P30 [MPA]; New Brunsw ick Partnership Act, RSNB 1973, c P-4 [NBPA]; New-
foundland and Labrador Partne rship Act, RSNL 1990, c P-3 [NLPA]; and Pr ince
Edward Islan d Partnership Act, R SPEI 1988, c P-1 [PEIPA].
THE LAW OF PARTNERSHIPS AND COR PORATIONS30
since their enactment, and there is an extensive body of judicial deci-
sions interpreting them. These decisions are also precedents and are
binding on courts in subsequent cases. The common law continues to
apply to the extent consistent with the applicable provi ncial legislation.5
In Quebec, Canada’s only civil law jurisdiction, partnerships are
governed by the Civil Code.6 In civil law jurisdictions, judges do not
make the law in the common law sense. Partnership law has its source
in the Civil Code. Although previous decisions are used to argue in
favour of a particular inter pretation of the Civil Code, they are not bind-
ing on courts in future cases.
The basic nature of partnerships in the common law provinces was
described in Ch apter 1. Under the Civil Code, partnerships are the sa me
in most respects.7 A partnership in Quebec takes on some different
characteristics, however, depending on the manner in which the part-
nership is formed. Partnerships are either “declared” or “undeclared.”
Declared partnerships are those registered under the Code, while un-
declared partnerships come into existence without being registered,
like partnerships in the common law jurisdictions. An important dif-
ference between undeclared partnerships under the Code and partner-
ships in common law jurisdictions, however, is that, in an undeclared
partnership, only those partners who are known by a third-party
creditor doing business with the partnership are liable to the third
party. In a declared partnership, like partnerships in other provinces,
all partners a re liable whether the third pa rty knows about them or not.
Declared partnerships may be limited partnerships, very like limited
partnerships in the common law jurisdictions, or general partnerships,
which have characteristics similar to common law partnerships as dis-
cussed below.8 Limited partnerships are a special kind of partnership
discussed near the end of this chapter.
The statutory law in Quebec and the other provinces deals with the
nature of the partnership, the relationship of the partners to each other
and to outsiders dealing with the partnership, and the dissolution of the
partnership. In no jurisdiction, however, do these provisions provide a
complete code to regulate the affairs of par tnerships. As a result, the sub-
stantial body of judicial decisions dealing with partnerships constitutes
an important source of part nership law. As well, partners w ill frequently
supplement or modify the rules governing their relationship in a con-
tract commonly referred to as a par tnership agreement. Some of the ways
5 OPA, s 45; BCPA, s 91; and NSPA, s 3.
6 Civil Code of Quebec, CQLR c C-1991 [CCQ], arts 2186–266.
7 See the defin ition of partnership at CCQ, art 2186.
8 CCQ, arts 2250–257.
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