Area of Law: Business Law
Answer # 215
How to determine if a partnership existsRegion: Ontario Answer # 215
In law, the question of whether a partnership exists must be determined by the real intentions of all the parties, which is determined by their conduct. In determining the real relationship, the court will look at the business relationship of the parties based on the substance rather than the form of their relationship. The court will consider everything that is available, such formal contracts, documents, advertisements, correspondence and the evidence of witnesses.
The factors that must be present to find that a partnership exists have been generally agreed upon by the court. The most common factors that the court considers are:
- The formal registration of a partnership,
- The contribution by the parties of money, property, knowledge, skills or other assets used in the business,
- A joint property interest in the property of the business,
- A mutual right of control or management of the enterprise,
- The expectation of profit, and
- The right of each party to participate in the profits.
View to profit
The Partnerships Act of Ontario states that a partnership exists if the parties carry on a business in common with a view to profit. Therefore, even if the parties intend to form a partnership and address themselves as partners or use the word “partnership,” a partnership will not exist unless they intend to share profits. If profit is to be generated, but is not to be common to the partnership but individual to the participants, then the necessary common profit element will not be found to exist.
If there is no other evidence, the registration of a partnership under the Business Names Act (Ontario) will likely be sufficient to determine that a partnership has been created. However, it is important to understand that it is not necessary to formally register a partnership to create it, nor is registration absolute proof that a partnership exists.
Contribution of each party
Another factor that the court considers is contribution. Some form of contribution by each of the parties, and an indication of interdependence, are normally enough to allow the court to decide that a partnership has been created. More information about starting a business or forming a partnership in Ontario can be found at ServiceOntario, or visit the Government of Canada, Canada Business Ontario.
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