A Review of Legal Issues
John E. Rogers, of
Burns, Fitzpatrick, Rogers & Schwartz
A. Definition of Partnership
• Section 2: Partnership is the relation which subsists between persons
carrying on business in common with a view of profit (exists without the
requirement to register a certificate unless the business is trading, mining or
• Section 7: The acts of every partner who does any act for carrying on in the
usual way business of the kind carried on by the firm of which he or she is a
member bind the firm and his or her partners, unless
• (a) the partner so acting has in fact no authority to act for the firm in the
particular matter, and
• (b) the person with whom he or she is dealing either knows that the partner
has no authority, or does not know or believe him or her to be a partner.
B. Types of Partnerships
• 1. General Partnership: see definition above. Most
common form of partnership for professionals
• 2. Joint Venture:
• Another form of General Partnership.
• BUT, most Joint Venture Agreements state that the
participants are not partners and exclude liabilities of
• 3. Limited Partnership:
• Requires one or more General Partners and one or more Limited
Partners (Section 50);
• Created by filing a specified certificate under the Partnership Act.
• Requires a written partnership agreement.
• The Limited Partners have no personal liability unless they
participate in the management.
• The General Partner signs for the Limited Partnership if granted
authority to do so under the Partnership Agreement. (Section 78
• Used most frequently for time limited single purpose ventures and
tax shelters where “flow through” of gains and loses for tax purposes
• 4. Limited Liability Partnership (“LLP”):
• Created by Registration (Section 96).
• May be provincial or extra-provincial.
• Most other aspects of the Partnership Act apply to LLP (but this is
misleading as it is really like a company).
• Similar to LLCs in U.S. jurisdictions..flow though entities for tax
• Has many of the characteristics of a limited liability company.
C. Liability of Partners
• 1. General Partners:
• Section 11: “A partner in a firm is liable jointly with the other partners for all
debts and obligations of the firm incurred while he or she is a partner, and
after his or her death his or her estate is also severally liable in a due
course of administration for those debts and obligations, so far as they
remain unsatisfied, but subject to the prior payment of his or her separate
• BUT WATCH FOR:
• Section 20: “A continuing guaranty or cautionary obligation given to a firm
or to a third person in respect of the transactions of a firm is, in the absence
of agreement to the contrary, revoked as to future transactions by any
change in the constitution of the firm to which, or of the firm in respect of the
transactions of which, the guaranty or obligation was given.”
• Section 5: If you loan money to a firm with the rate of return contingent on
the profits of the firm and the firm becomes insolvent and cannot pay 100
cents on the dollar, you are postponed to all other creditors until they are
• Joint Liability is when “two or more persons are both responsible
for a debt, claim or judgment. It can be important to the person
making the claim, as well as to a person who is sued, who can
demand that anyone with joint liability for the alleged debt or claim
for damages be joined in (brought into) the lawsuit with them”.
• Partners in a regular/general partnership are “jointly” liable for all
• 2. Limited Partners:
• Section 57: .. a limited partner is not liable for the obligations of the
limited partnership except in respect of the amount of property he or
she contributes or agrees to contribute to the capital of the limited
• The General Partner has the same full liability as a partner in a
• 3. Limited Liability Partners:
• Section 95(2): Regular liability of partners does not apply to Limited
• Limited Liability Partner:
– is not liable for partnership debts;
– is liable for his/her own negligence;
– is liable for negligence of employees and other partners if he/she
knew of the problem and did not take reasonable steps to
prevent it; and otherwise
– Liability is limited to only the assets in the firm (see Section 104).
• This is the “full shield” version of limited liability for
• Section 104 is copied from the Model Act published by
the Uniform Law Conference of Canada. The
commentary by the Conference states:
• “It will be noted that the introductory words of subsection (1) are
"Except as expressly provided in this Part, another Act. It does not
say, "except as expressly provided in this Act." Thus, provisions in
other Parts of the Partnership Act that expressly impose personal
liability on partners do not override the liability protections provided
in subsection (1).”
• When you add the provisions of Section 105, Limited
Liability Partners have fewer liabilities than directors of
corporations although they do have liability for employee
wages, tax deductions at source, etc.
• Extra-Provincial LLPs: All partners of an extra-provincial
LLP that is carrying on business in B.C. but not
registered under the Act are jointly personally liable as if
they were General Partners (Section 114).
• This is good for the Bank but bad for the LLP.
• Note: A partner in an LLP can take part in the
management of a LLP without losing his/her limited
liability whereas a limited partner in a Limited
Partnership can not!
D. Rules Relating to
• There are few rules established by professional
E. Legal Issues in Partnerships
• The Law Society requires the following notice to clients
of firms converting to a LLP:
• “The partners in a limited liability partnership are not personally
liable for the negligent acts or omissions of another partner or an
employee unless the partner knew of the negligent act or omission
and did not take reasonable steps to prevent it. Each partner is
personally liable for his or her own actions, and the partnership
continues to be liable for the negligence of its partners, associates
and employees. Accordingly, there is no reduction or limitation on
the liability of the partnership.”
• What it does not say is that the partners are no longer
liable for the debts or obligations of the partnership.
More candidly, the Benchers have stated:
• “A limited liability partnership structure shields an individual partner
from personal liability for the debts of the partnership or for
negligence and wrongdoing of other partners, except to the extent of
the partner’s share in the partnership’s assets. Individual partners
continue to incur personal liability for their own negligence or
wrongful acts and those of the persons they directly supervise or
• LLP partners have “full shield” protection from
partnership debts like shareholders of a
• In dealing with an LLP:
– treat it like a corporation.
– BUT you must read the Partnership Agreement and
confirm its status a registered LLP.
– All partners should sign guarantees of the LLP loans.
– Obtain certificate of parties signing for the LLP that
they have power to bind the partnership. This can be
in the loan document.
• In some respects, a partner of a LLP is more protected
than a shareholder/director of a Limited Liability
• If we add in a Personal Law Corporation as the partner
of the LLP, the limitation on personal liability becomes
even more complete.
• Professional societies do not require their members who
are LLP partners to agree to liability to third parties other
than for professional negligence.
• Question: Would anyone other than the “firm” be liable
for an opinion signed “McCarthys LLP” or an