What is the difference between a sole proprietorship and a partnership in Ontario?
A sole proprietorship has one owner. A partnership arises when two or more persons carry on business together with a view to profit — even without a written agreement, the Partnerships Act (Ontario) can treat an arrangement as a general partnership.
In a general partnership, each partner is jointly and severally liable for the debts and obligations of the partnership and for the acts of the other partners done in the course of partnership business. This means one partner's mistake can expose all partners' personal assets. Unlike a sole proprietorship — where only your own actions create liability — a partnership multiplies your exposure to include your co-venturers' actions.
Ontario also allows limited partnerships (LPs) and limited liability partnerships (LLPs). In an LP, limited partners generally risk only their investment, provided they don't take part in management. LLPs are available to certain regulated professions such as lawyers and accountants and limit some inter-partner liability. For most general business purposes, entrepreneurs considering a multi-owner structure choose a corporation over a general partnership to get the liability shield and a more structured governance framework.
Key takeaways
- Any two or more people in business together may be treated as a general partnership by law.
- General partners share unlimited personal liability for each other's acts.
- Limited partnerships and LLPs offer partial liability protection in specific contexts.
- A corporation is usually preferable to a general partnership for liability and governance reasons.