Is buying into a partnership the same as buying shares?

Buying into a partnership and buying shares can look alike on a term sheet, because both hand you a percentage of a business. They are different transactions. Shares make you an owner of a corporation that carries on as before. A buy-in changes the group of people who run the business together, which touches personal exposure, tax registration and the agreement that governs everyone.

Who answers for the debts

Under Ontario’s Business Corporations Act, shareholders are not, as shareholders, liable for the acts, defaults, obligations or liabilities of the corporation, apart from a short list of statutory exceptions. A company formed under another statute is governed by that statute instead. That protection does not carry over to a partnership by default. Whether a partner answers for the firm’s obligations depends on the type of partnership and the law of the province, so have a lawyer confirm your exposure first.

What changes with the CRA

The Canada Revenue Agency treats the two differently. When a corporation’s owners or structure change, the incorporating authority is updated first, then supporting documents go to the CRA. When a partner joins or leaves a partnership, the CRA asks you to call it, and notes that in some cases a change of partners makes the business a new legal entity needing a new business number and new program accounts.

Competition rules can apply to either

The Competition Act defines a merger as acquiring control of, or a significant interest in, all or part of a business, including by buying shares or assets. Its pre-merger notification rules treat voting shares and interests in non-corporate combinations separately, each above size thresholds and each judged by your total holding afterwards. Below those thresholds no notification is required, but the Competition Bureau says it may review any merger, whatever its size.

Read the agreement before the price

A partnership agreement does much of the work a corporate statute would otherwise do. Ask how profits are shared, who decides what, how a departing partner is paid out and what happens when partners disagree. For a staged buy-in, ask what happens if a later stage never closes. If you are weighing legal help, see do I need a lawyer to buy a business.