How do I sell a business that is a partnership?

The statutes below define a partnership as a relation between persons, so a sale involves the partners, not one owner. Start with the partnership agreement, then the partnership statute that applies, then the tax rules. This page covers Ontario’s and British Columbia’s Acts, each as that province’s own, and the federal Income Tax Act. If you are elsewhere, check the rules where you are.

What the statutes say a partnership is

Ontario’s Partnerships Act s.2 defines partnership as the relation that subsists between persons carrying on a business in common with a view to profit, and says the members of an incorporated company are not a partnership under that Act. British Columbia’s Partnership Act uses essentially the same words. First confirm that your business really is a partnership and not a corporation with several shareholders.

Who has to agree to a new partner

Ontario’s Partnerships Act says that, subject to any agreement express or implied between the partners, no person may be introduced as a partner without the consent of all existing partners. British Columbia’s Partnership Act lists the same rule, subject to the same words, and in both provinces the partners’ mutual rights and duties may be varied by the consent of all the partners. Under Ontario s.31, a partner’s assignment of a share does not, as against the other partners, entitle the assignee to interfere in management or administration during the continuance of the partnership. So, unless the partnership agreement says otherwise, a buyer of one partner’s share needs the other partners’ consent to be introduced as a partner.

Ending the partnership

Under Ontario s.32, subject to any agreement between the partners, a partnership entered into for an undefined time is dissolved by a partner giving the others notice of an intention to dissolve it, from the date in the notice or, if none is given, the date the notice is communicated. Ask a lawyer how your agreement handles a sale of the whole business and who must sign.

Tax steps for the partners

Income Tax Act s.85(2) applies where a partnership disposes of partnership property of the kinds listed in s.85(2)(a) to a taxable Canadian corporation for consideration that includes shares, if the corporation and all the members of the partnership jointly elect in prescribed form (CRA form T2058) within the time in s.85(6). Under s.98(1), a partnership that would otherwise be regarded as having ceased to exist is deemed not to have ceased until its property has been distributed. Members of a Canadian partnership that has ceased may jointly elect under s.98(3) (form T2060) if all its property was distributed to them so that each holds the same percentage undivided interest in every property and they elect within the time in s.96(4), but s.98(4) says s.98(3) does not apply where s.98(5) or s.85(3) applies. Have an accountant confirm which applies.

If only one partner is leaving, see how to sell your share of the business to your partner.