Partnership Agreement Template Canada: What to Include
Free Template
A partnership agreement is a contract between two or more people who agree to carry on a business together with a view to profit. Without a written agreement, your partnership is governed entirely by your province’s default Partnership Act rules — which may not reflect what you and your partners actually agreed to. Default rules presume equal profit sharing regardless of contribution, joint liability for all partnership debts, and the ability of any partner to bind the partnership to contracts. A well-drafted partnership agreement template overrides these defaults and protects everyone. Download our free template or book a free consultation.
A partnership agreement is the foundational document for any business partnership in Canada. It defines how the business is owned, operated, and — critically — how it ends. Without one, you are relying on provincial default rules that rarely align with your expectations. In Ontario, for example, the Partnerships Act presumes that all partners share profits equally — even if one partner contributed $200,000 and the other contributed $5,000. A written partnership contract overrides this default and ensures that contributions, profits, decision-making authority, and exit rights reflect what you actually agreed to.
This guide walks through every clause your partnership agreement template should contain, explains the three types of partnerships in Canada (general, limited, and LLP), covers the profit-sharing models, capital contribution structures, dispute resolution mechanisms, buy-sell provisions, and dissolution procedures that protect you and your partners. Whether you are starting a small business with a friend or formalizing a multi-partner professional firm, start with our free partnership agreement template.
Types of Partnerships in Canada
General Partnership (GP)
The most common type. All partners share management rights and unlimited personal liability for partnership debts. Each partner can bind the partnership to contracts. Profits and losses are shared as agreed (or equally by default).
⚠️ Personal assets are at risk.
Limited Partnership (LP)
Has at least one general partner (unlimited liability, manages the business) and one or more limited partners (liability limited to their investment, no management role). Common for real estate, investment funds, and family businesses.
✅ Limited partners protected from personal liability.
Limited Liability Partnership (LLP)
All partners participate in management but are not personally liable for the negligence or misconduct of other partners. Available primarily for regulated professions — lawyers, accountants, engineers, architects.
Best for: professional firms (law, accounting).
Essential Clauses in a Partnership Agreement Template
Every Canadian partnership agreement contract sample should include these provisions. Missing any one can lead to costly disputes:
Partnership Name and Purpose
The legal name of the partnership, the business address, and a clear description of what the partnership does. The purpose clause defines the scope of activities the partnership is authorized to conduct — any activity outside this scope may not bind the partnership.
Capital Contributions
Document each partner’s initial contribution — cash, property, equipment, intellectual property, or services — with valuations for non-cash contributions. Specify whether contributions are refundable upon dissolution, how future capital calls will work, and the consequences of failing to contribute (dilution, penalty, or default). This clause directly affects ownership percentages and profit shares.
Profit and Loss Distribution
How profits and losses are allocated: equally, proportional to capital contributions, based on ownership percentage, or using a custom formula (e.g., salary + bonus + residual split). Specify when distributions occur (monthly, quarterly, annually), draw limits, and whether partners can take guaranteed payments (“draws”) against future profits. Without this clause, provincial law presumes equal sharing — regardless of contribution.
Management and Decision-Making
Who manages the day-to-day operations? Who has authority to sign contracts, loan agreements, and commercial leases on behalf of the partnership? Define voting rights (equal or weighted), what decisions require unanimous consent vs. majority vote, and spending authority limits. Common thresholds: day-to-day under $5,000 = any partner; $5,000–$25,000 = majority; over $25,000 or new debt = unanimous.
Partner Roles and Time Commitment
Define each partner’s specific responsibilities, minimum time commitment (full-time, part-time, specified hours), fiduciary duties, and restrictions on outside business activities. Partners owe each other a duty of good faith and loyalty — but spelling out expectations prevents disputes about who is doing their fair share.
Buy-Sell Provisions
What happens when a partner wants out — or must leave? The buy-sell clause covers voluntary withdrawal, involuntary removal (for cause), death, disability, and retirement. Include the valuation method (independent appraisal, formula-based, book value, or agreed value), payment terms (lump sum or installments via promissory note), right of first refusal for remaining partners, and whether life insurance funds the buyout upon death.
Dispute Resolution
A structured escalation path: negotiation → mediation → binding arbitration (or litigation as a last resort). Specify the mediator/arbitrator selection process, the applicable provincial law, and the venue (city). Arbitration keeps disputes private and is typically faster and cheaper than litigation. Include a deadlock-breaking mechanism for 50/50 partnerships.
Restrictive Covenants
Non-compete and non-solicitation clauses prevent departing partners from competing with the business or poaching clients and employees. Canadian partnership law does not imply these restrictions — they must be written into the agreement. In the business context (as opposed to employment), courts enforce broader non-competes provided they are reasonable in scope, geography, and duration. Include a confidentiality/NDA provision covering trade secrets and client information.
Profit-Sharing Models for Canadian Partnerships
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Partnership Dissolution and Exit Provisions
Every partnership eventually ends — through voluntary withdrawal, retirement, death, dispute, or business failure. Your partnership agreement must plan for all of these scenarios. For more on the withdrawal process, see our partnership withdrawal guide and partnership amendment services.
Voluntary withdrawal: Specify the notice period required (typically 90–180 days), the valuation method for the departing partner’s interest, payment terms (lump sum or installments over 12–36 months), and whether the remaining partners have a right of first refusal before the interest can be sold to a third party.
Removal for cause: Define what constitutes “cause” — breach of the agreement, fraud, criminal conviction, loss of professional licence, bankruptcy, or sustained failure to perform duties. Include a notice and cure period (30–60 days to remedy the breach before removal takes effect).
Death or disability: The buy-sell clause should specify how the deceased partner’s interest is valued and purchased — typically funded by life insurance policies taken out on each partner’s life. Without this, the deceased partner’s estate becomes a partner, potentially causing governance problems. A disability clause addresses temporary vs. permanent incapacity and the trigger for a buyout.
Full dissolution: When all partners agree to end the partnership. Define the winding-up procedure: settling debts and liabilities, liquidating assets, distributing remaining assets to partners (according to their ownership interests), deregistering the business name, notifying CRA and provincial registries, and filing final tax returns.
Partnership Law Across Canadian Provinces
Ontario: Governed by the Partnerships Act, R.S.O. 1990. Default rule: equal profit sharing regardless of contribution. Must register under the Business Names Act if operating under a name other than partners’ own names. The 2025 Ontario Court of Appeal decision in Anthony v. Binscarth Holdings reinforced that limited partners need specific profit distribution terms in the agreement to receive cash from the partnership.
Alberta: Governed by the Partnership Act, R.S.A. 2000. Must register under the Partnership Act. Alberta’s strong energy and resource sector means many partnerships involve oil and gas joint ventures — requiring specialized provisions for working interests, operational control, and environmental liability allocation.
British Columbia: Governed by the Partnership Act, R.S.B.C. 1996. Registration required under the Partnership Act. BC also permits limited partnerships under the Limited Partnerships Act with filings through BC Business Registry.
Quebec: Partnerships are governed by the Civil Code of Quebec, not common law. Quebec recognizes “general partnerships” (société en nom collectif), “limited partnerships” (société en commandite), and “undeclared partnerships” (société en participation). The Civil Code applies different rules on liability, dissolution, and partner obligations. A partnership agreement in Quebec should be drafted by a lawyer familiar with civil law.
Common Partnership Agreement Mistakes
No written agreement at all. The most common and most costly mistake. Without a written agreement, your province’s default Partnership Act rules apply — equal profit sharing, joint liability, and the right of any partner to dissolve the partnership at will. Handshake deals end in lawsuits.
No exit strategy. Partnerships that plan for how they start but not how they end are setting themselves up for an expensive dispute. Include buy-sell provisions, valuation methods, and clear procedures for voluntary withdrawal, removal, and death — before you need them.
Ignoring the 50/50 deadlock problem. Two equal partners who disagree on a major decision have no tiebreaker — the business stalls. Include a deadlock-breaking mechanism: a trusted third-party mediator, a rotating casting vote, or a shotgun (buy-sell) clause where either partner can offer to buy the other out at a stated price.
Not considering incorporation. A general partnership exposes every partner to unlimited personal liability for all partnership debts. Consider whether incorporating as a corporation — with a shareholders’ agreement instead of a partnership agreement — better protects your personal assets. The tax implications differ as well.
No restrictive covenants. Without non-compete and non-solicitation clauses, a departing partner can immediately open a competing business next door and poach your clients. Canadian partnership law does not imply these restrictions — you must include them in the written agreement.
Tax Considerations for Canadian Partnerships
Flow-through taxation: Partnerships in Canada do not pay income tax at the partnership level. Instead, the partnership’s income and losses “flow through” to each partner, who reports their share on their personal tax return (or corporate return, if the partner is a corporation). The partnership files an information return (T5013) but does not pay tax itself.
Allocation must match the agreement: CRA requires that partnership income be allocated in accordance with the written partnership agreement. If the agreement says 60/40, CRA expects 60/40 reporting. Oral agreements create uncertainty and audit risk.
GST/HST registration: The partnership must register for GST/HST if its revenues exceed $30,000 in a 12-month period. The partnership itself (not individual partners) registers and files GST/HST returns.
Partnership vs. corporation: Partnerships offer flow-through taxation (beneficial when partners are in lower tax brackets or have losses to offset). Corporations offer limited liability and access to the small business deduction (combined federal-provincial rate as low as 11% in Alberta, 12.2% in Ontario). Your accountant and lawyer should advise on which structure is optimal for your situation.
Frequently Asked Questions About Partnership Agreements
Do I need a partnership agreement in Canada?
You are not legally required to have one — but operating without a written partnership agreement means your province’s default Partnership Act rules govern everything. These defaults may not reflect your actual arrangement: profits are split equally regardless of contribution, any partner can bind the partnership to contracts, and any partner can dissolve the partnership at any time. A written agreement is essential to protect all partners.
What happens if we don’t have a partnership agreement?
Provincial default rules apply. In Ontario, for example: profits and losses are shared equally (even if one partner invested $200,000 and the other invested nothing), every partner has equal management rights, and any partner can dissolve the partnership by giving notice. Disputes are resolved in court — an expensive and public process. A written agreement prevents all of this.
How much does a partnership agreement cost?
A lawyer-drafted partnership agreement typically costs $1,000–$3,000 for a straightforward general partnership, and $3,000–$7,000+ for complex partnerships (limited partnerships, multi-partner, or partnerships with significant assets). Our free template provides a starting point, with lawyer customization available at lower cost than drafting from scratch.
What is the difference between a partnership and a corporation?
In a general partnership, all partners have unlimited personal liability for partnership debts. A corporation provides limited liability — shareholders’ personal assets are generally protected. Partnerships use flow-through taxation; corporations pay tax at the corporate level. Partnerships are simpler and cheaper to set up; corporations offer better liability protection and access to the small business tax rate. See our incorporation guide for more details.
Can a partnership agreement be changed after it’s signed?
Yes — through a partnership amendment. Most agreements require the written consent and signatures of all partners to amend. Common amendments include adding or removing partners, changing profit-sharing ratios, updating capital contributions, or modifying management structures. Always document amendments in writing and attach them to the original agreement.
What is a buy-sell clause in a partnership agreement?
A buy-sell clause (also called a buyout clause) establishes the terms under which a partner’s interest can be purchased by the remaining partners — upon death, disability, voluntary withdrawal, or involuntary removal. It specifies the valuation method, payment terms, and timeline. Without a buy-sell clause, a departing partner’s interest may be transferred to their estate or a third party — potentially leaving the remaining partners with an unwanted new partner.
Should my partnership agreement include a non-compete clause?
Yes — strongly recommended. Canadian partnership law does not impose non-compete restrictions on departing partners by default. Without a written non-compete clause, a former partner could immediately open a competing business and solicit your clients. In the business sale/partnership context, courts enforce broader non-competes than in employment — provided the scope, geography, and duration are reasonable.
How is a partnership registered in Canada?
Registration requirements vary by province. In Ontario, partnerships must register under the Business Names Act ($60 fee). In Alberta, registration is under the Partnership Act (through a registry agent). In BC, registration is through the BC Business Registry. Limited partnerships require additional filings in all provinces. Registration does not create the partnership — the agreement between the partners does — but registration is required by law and affects third-party notice.
Do partners pay income tax on partnership income?
The partnership itself does not pay income tax. Instead, partnership income flows through to each partner, who reports their allocated share on their personal tax return (or corporate return). The partnership files an information return (T5013) with CRA. Each partner’s share of income is taxable at their individual marginal rate — or the corporate rate if the partner is a corporation.
Where can I download a free partnership agreement template?
Download our free, lawyer-reviewed partnership agreement template from Canada Business Lawyers. Browse our full template library for related documents. For a customized agreement, book a free consultation with one of our business lawyers.
Build Your Partnership on a Solid Foundation
A properly drafted partnership agreement prevents disputes, protects your investment, and ensures a fair exit strategy for every partner. Don’t rely on default rules that don’t reflect your deal.