General vs Limited Partnership in Canada — the Agreement Worth Writing Down
Two South African friends open a small contracting business outside Calgary. They shake hands, split the work roughly evenly, and never get around to writing anything down. Eighteen months later one of them wants out, and neither can agree what “out” means. This is the scenario a partnership agreement exists to prevent, and the general vs limited partnership in Canada distinction is where that conversation should start.
The two structures, and what they actually change
A general partnership is the default arrangement when two or more people run a business together for profit without incorporating. You don’t need to file anything special to create one, which is exactly why so many end up with no agreement at all. Every general partner shares in the debts and obligations of the business, and that liability is joint. So can one partner be sued for the whole partnership debt? In a general partnership, yes — a creditor can pursue any one partner for the full amount rather than a proportional share, leaving that partner to sort out reimbursement from the others afterward.
A limited partnership is different by design. It has at least one general partner who runs the business and carries unlimited liability, plus one or more limited partners whose liability is capped at what they invested, provided they stay out of day-to-day management. Step into management as a limited partner and you risk losing that protection. Limited partnerships are commonly used where an investor wants exposure to a business without operational involvement or personal risk beyond their stake.
What happens if a partner walks away
In a general partnership without a written agreement, a partner’s departure can, depending on the province’s default partnership legislation, technically dissolve the partnership itself. That can force a wind-up or renegotiation at the worst possible moment, usually when trust between the remaining partners is already strained. So do you need a written partnership agreement in Canada? Legally, no — you can trade for years without one. Practically, it’s the only thing that lets you decide these terms in advance, while everyone is still getting along.
What a partnership agreement should cover
A useful agreement sets out how profits and losses are split, what happens if a partner wants to leave or is bought out, and how disputes get resolved. It should also state who can bind the partnership to a contract, and what happens to the business if a partner dies or becomes incapacitated. None of this is exciting to draft. All of it is expensive to improvise later, usually with lawyers involved on both sides.
Registering a partnership
Requirements vary by province, but most require registering the business name if you’re operating under anything other than the partners’ own legal names, through the relevant provincial business registry. Beyond that, provincial partnership legislation supplies default rules for everything you haven’t put in writing yourselves — which is the whole argument for putting the important things in writing yourselves.
None of this substitutes for advice specific to your situation. Partnership structures interact with tax treatment, immigration status if one partner isn’t yet a permanent resident, and liability exposure in ways that genuinely benefit from a conversation with a Canadian accountant or business lawyer before you sign anything.
If you’re building a business as part of your move rather than taking employment, that’s a strategic decision worth its own research well before incorporation or registration — this post is a starting orientation, not the whole picture.