General Partnership vs Limited Partnership in Ontario: What's the Difference?

Choosing the right business structure is one of the first real decisions entrepreneurs face — and one of the most consequential. If you are considering a partnership in Ontario, the distinction between a general partnership and a limited partnership shapes who is personally on the hook for business debts, who can run the business day-to-day, and what paperwork you need to file. This guide unpacks those differences in plain language so you can walk into a lawyer's office knowing the right questions to ask.

Ontario's two core partnership statutes are the Partnerships Act and the Limited Partnerships Act. Both govern how partners relate to each other and to the outside world. The rules are not identical, and confusing the two structures can expose you or your investors to serious legal risk.

What Is a General Partnership?

A general partnership forms automatically when two or more people carry on a business together with a view to profit — no written agreement is legally required, though having one is strongly recommended. Every partner in a general partnership is a general partner, which means:

• Each partner can bind the partnership in contracts and business dealings.
• Each partner is personally and jointly liable for the debts and obligations of the partnership, including debts run up by the other partners acting within the ordinary scope of the business.
• There is no liability cap; your personal assets (home, savings, car) are at risk.

General partnerships in Ontario must register a business name under the Business Names Act if they operate under a name other than the partners' own full legal names.

What Is a Limited Partnership?

A limited partnership (LP) is a creature of statute — it only exists if it is registered under Ontario's Limited Partnerships Act. It has two classes of partners:

General Partners in an LP

There must be at least one. General partners manage the business and retain unlimited personal liability, just as in a general partnership. This is usually a corporation rather than an individual, precisely to cap liability at the corporate level.

Limited Partners in an LP

Limited partners contribute capital (money, property, or services) but do not manage the business. In exchange, their liability is capped at the amount they invested. This makes the LP structure attractive for investment vehicles, real estate syndications, and private equity funds.

Watch-out: If a limited partner starts participating in the management of the partnership's business, they risk losing their limited liability protection and being treated as a general partner. The line between passive investment and active management can be blurry — get advice before acting.

Side-by-Side Comparison

Taxation: Both Are Flow-Through

Neither structure pays income tax itself. Profits and losses flow through to each partner in proportion to their partnership interest, and each partner reports their share on their personal (or corporate) tax return. This flow-through feature is a major reason sophisticated investors prefer LPs over corporations for certain investment vehicles.

Note: the income character (business income, capital gains, rental income) generally retains its character as it flows to partners — a meaningful planning consideration. Speak to a tax lawyer or accountant about your specific mix of income.

Registration Requirements at a Glance

General Partnership

• Register the business name with ServiceOntario (as of writing, a modest fee — verify the current amount at ontario.ca).
• No special declaration form.

Limited Partnership

• File a Declaration with ServiceOntario under the Limited Partnerships Act.
• The declaration names the general partners, the LP's business, and its term (if any).
• Amendments must be filed when core information changes (e.g., a new general partner).

Failure to maintain a valid LP declaration can have serious legal consequences, including loss of limited liability for limited partners.

Which Structure Is Right for You?

Choose a general partnership when:

• All partners want to be active in running the business.
• The business is small and the partners are comfortable with shared liability (often mitigated by professional liability insurance).
• Simplicity and low setup cost are priorities.

Choose a limited partnership when:

• You need to raise passive capital from investors who do not want unlimited personal liability.
• You are structuring a real estate project, private fund, or joint venture.
• You want a corporate general partner to act as the managing entity.

Neither structure eliminates the need for a solid partnership agreement — see our related article on what a partnership agreement should cover.

Frequently asked questions