Simon's Megalomaniacal Legal Resources

Partnerships - Definition of Partnership

The definition of a partnership is set out s.2 of the Partnerships Act:

2 Partnership is the relation that subsists between persons carrying on a business in common with a view to profit, but the relation between the members of a company or association that is incorporated by or under the authority of any special or general Act in force in Ontario or elsewhere, or registered as a corporation under any such Act, is not a partnership within the meaning of this Act.

. Nutrition Guidance Services Inc. v. Schwartz

In Nutrition Guidance Services Inc. v. Schwartz (Ont CA, 2025) the Ontario Court of Appeal considered duelling summary judgment motions, here where the "primary issue on the motions was whether the Property was held in a partnership or as a tenancy in common [SS: which was found], and whether a sale should be ordered under the Partition Act".

Here the court considers the requirements for the existence of a partnership:

[12] The appellants argue that the motion judge erred in dismissing their claim that the Property was an asset of a partnership. The appellants accept that the motion judge correctly stated the law applicable to determining whether a partnership exists. However, they argue that the motion judge erred in his application of the law and made palpable and overriding factual errors. In particular, the appellants argue that the motion judge erred in focusing on whether the parties had a medical business in common; they argue the asserted partnership was a commercial real estate venture. The appellants argue that the motion judge conflated the business and view to a profit branches of the analysis. They argue that the motion judge erred in his consideration of the view to a profit branch of the analysis by reasoning that although a partnership does not have to turn a profit, a common element of a for-profit business is that if the business “has low prospects of ever turning a profit, the rational businessperson will close shop.” The appellants argue that this is inconsistent with the recognition in Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367, at para. 23, that an ancillary profit-making purpose is sufficient.

[13] I see no error in the motion judge’s finding that the record did not support a finding that the Property was held in a partnership.

[14] The motion judge correctly stated the requirements for the existence of a partnership. The three essential ingredients of a partnership are (1) a business, (2) carried on in common, and (3) with a view to profit: Backman, at para. 18; Partnerships Act, s. 2.

[15] The question of whether a partnership exists turns on the intentions of the parties as determined by the totality of the circumstances. The Supreme Court provided the following guidance for assessing whether a partnership exists, in Backman, at paras. 25-26:

... to ascertain the existence of a partnership the courts must inquire into whether the objective, documentary evidence and the surrounding facts, including what the parties actually did, are consistent with a subjective intention to carry on business in common with a view to profit.

Courts must be pragmatic in their approach to the three essential ingredients of partnership. Whether a partnership has been established in a particular case will depend on an analysis and weighing of the relevant factors in the context of all the surrounding circumstances. That the alleged partnership must be considered in the totality of the circumstances prevents the mechanical application of a checklist or a test with more precisely defined parameters.

[16] A written agreement is not essential to find that a partnership exists, but the presence or absence of a written agreement “setting out the respective rights and obligations” of the parties as partners is a significant consideration: Backman, at para. 21.

[17] Section 3(1) of the Partnerships Act provides the following important interpretative guidance for considering whether a partnership exists in these kinds of circumstances:

3 In determining whether a partnership does or does not exist, regard shall be had to the following rules:

1. Joint tenancy, tenancy in common, joint property, common property, or part ownership does not itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.

[18] This court considered s. 3(1) of the Partnerships Act in A.E. LePage Ltd. v. Kamex Developments Ltd. et al. (1977), 1977 CanLII 44 (ON CA), 78 D.L.R. (3d) 223, 16 O.R. (2d) 193. The court described the impact of s. 3(1) as follows, at pp. 224-225.

The mere fact that property is owned in common and that profits are derived therefrom does not itself constitute co-owners as partners….

Whether or not the position of co-owners becomes that of partners depends on their intention disclosed by all the facts of the case. It is necessary to determine whether the intention of the co-owners was to “carry on a business” or simply to provide by an agreement for the regulation of their rights and obligations as co-owners of a property.

This court’s holding in LePage is consistent with the Supreme Court decision in Backman.

[19] I am not persuaded that the motion judge erred in his application of the law. The question of whether the record supported a finding that a partnership existed is a factual one: Continental Bank Leasing Corp. v. Canada, 1998 CanLII 794 (SCC), [1998] 2 S.C.R. 298, at para. 23, per Bastarache J., dissenting, but not on this issue. In assessing whether a partnership existed, the motion judge properly turned his mind to the totality of the circumstances: Backman, at paras. 25-26. I see no palpable and overriding error in the motion judge’s factual findings on the partnership issue. His factual findings are entitled to deference.

[20] The motion judge summarized the evidence about the ownership and operations of the Property over time. He noted that there was no written agreement among the owners at any time. On the business branch of the partnership analysis, he considered and rejected the existence of a medical partnership, because there was no evidence to support that the parties were ever in a medical partnership. He then considered whether the parties operated the building in partnership. He accepted that operation of the building could come within the concept of a business as that term was used in Backman. He noted that it was difficult to separate the concept of a business from the requirement of a view to a profit. Based on the record before him, he found that the operation of the building did not satisfy the business requirement. With the minor exceptions of occasional tenants who were not owners, the only “customers” were the owners. The owners contributed funds to a bank account operating as a float to meet expenses. The building always operated at a loss. The motion judge found that the rent from the occasional tenants “could not have been meant to put the accounts into the black.” While the owners shared the expenses of running the building as an office, the motion judge was not satisfied that the operation of the building was a business.

[21] The motion judge found that the requirement that a business be carried on “in common” was also not satisfied. He found that there was a common intention to carry on (separate) medical practices without paying commercial rent. But this was not carrying on a business in common. He considered the fact that the various owners over time bought into the building expecting that an increase in the value of the building would offset the ongoing operating losses. But he found that this factor was insufficient in the totality of the circumstances to distinguish this case from ordinary ownership and to establish a partnership relationship.

[22] The motion judge found that the requirement of a view to a profit was also not satisfied. He acknowledged that a partnership does not have to actually turn a profit to satisfy the view to a profit requirement. But he found that the evidence that the building always operated at a loss confirmed that there was never an intention to make money from the Property separate from its value as a real estate investment (i.e., its value on ultimate sale).

[23] Finally, the motion judge considered the manner in which the Property was acquired. He recognized that, pursuant to s. 22 of the Partnerships Act, property bought with money belonging to the partnership is deemed to be an asset of the partnership. He observed that, had the Property been purchased from a common pool of funds, it could have provided evidence that the Property was acquired as partnership property. Examining the evidence of transfers of the Property over time, the motion judge concluded: “None of the transactions tracked in the evidence exhibited any purchase by a pool of funds contributed by the parties. Rather, the current owners acquired their shares as separate owners.”

[24] In my view, the substance of the motion judge’s analysis properly considered whether the three aspects of a partnership were established by considering the objective, documentary evidence, and the surrounding facts – the totality of the circumstances – in accordance with Backman.

....

[27] Finally, I would reject the appellants’ argument that the motion judge erred in his consideration of the view to a profit branch of the analysis. The motion judge’s comments about the fact that the building operated at a loss over a long period of time and the relevance of its low prospects of ever turning a profit were factual issues he was entitled to consider in assessing whether the totality of the circumstances supported the existence of a partnership (in particular, as relevant to whether there was a view to a profit). These aspects of the reasons do not show palpable and overriding error. The motion judge did not fail to consider whether there was an intention to profit from the ultimate sale of the building. He addressed this issue elsewhere in his reasons. But he found that in all of the circumstances, it was not a factor that was sufficient to establish the existence of a partnership.

[28] The appellants asserted the existence of a partnership. It was their burden to establish that a partnership existed. While it would have been possible to set up a relationship among the parties in respect of the Property as a partnership, I see no error in the motion judge’s conclusion that the evidence was insufficient to show that the parties here actually did so. The evidence was insufficient to lift the relationship in this case beyond the presumption in s. 3(1) of the Partnerships Act that co-ownership does not, of itself, create a partnership.

[29] I would add that nothing in the record shows that the parties ever turned their minds to the multiple responsibilities that would have existed among them if a partnership existed. The fact that they did not is a further indication that no partnership was contemplated.

[30] I do not attempt a comprehensive list of responsibilities inherent in a partnership relationship, but significant responsibilities include: a fiduciary relationship between the partners, creating duties of loyalty, utmost good faith, and avoidance of conflict and self-interest; joint liability of partners for all debts and obligations of the partnership; the ability of one partner acting in the ordinary course of business to bind the partnership; and vicarious liability for the acts of other partners acting in the ordinary course of business: Rochwerg v. Truster (2002), 2002 CanLII 41715 (ON CA), 58 O.R. (3d) 687 (On. C.A.), at para. 36; Partnerships Act, ss. 6, 7, 10, 11.

[31] The appellants’ claim seeks to assert one right of partnership – remedies upon dissolution – without regard for the many responsibilities which would have accompanied a partnership if one had existed.

[32] In sum, I see no legal error or palpable and overriding factual error in the motion judge’s conclusion that the appellants failed to establish that the Property was held as an asset of a partnership.

. Mahendran v. Singh et al.

In Mahendran v. Singh et al. (Div Court, 2022) the Divisional Court considered the test for partnership:

[22] In Cohen v. Brin, the case Edwards RSJ cited, Master Albert described the test for partnership at paras. 14 and 15:

The Partnership Act, R.S.O. 1990, c. P5, provides:

2.Partnership is the relation that subsists between persons carrying on business in common with a view to profit.

3.The receipt by a person of a share of the profits of a business is proof, in the absence of evidence to the contrary, that the person is a partner in the business ...

(b) a contract for the remuneration of a servant or agent or a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such.

The existence of a partnership depends on the facts and circumstances of each case and the intention of the parties. There are three essential ingredients: (1) a business, (2) carried on in common, and (3) with a view to profit. (See: Continental Bank of Canada v R, 1998 CanLII 794 (SCC), [1998] 2 S.C.R. 298, 1998 CarswellNat 1496 (S.C.C.) at paras. 22 and 23). The indicia of partnership include the contribution by the parties of money, property, effort, knowledge, skill or other assets to a common undertaking, a joint property interest and the sharing of profits or losses (supra at para 24).

[23] The governing words of the Partnership Act remain the same today as they were when Cohen v. Brin was decided. Further, Continental Bank of Canada remains binding jurisprudence: see 1062484 Ontario Inc. v. Williams McEnery, [2021] O.J. No. 1011 (Ont. C.A.) at para. 24. In Continental Bank, the majority stated at para. 22 that:

Section 2 of the Partnerships Act defines partnership as "the relation that subsists between persons carrying on a business in common with a view to profit". This wording, which is common to the majority of partnership statutes in the common law world, discloses three essential ingredients: (1) a business, (2) carried on in common, (3) with a view to profit. I will examine each of the ingredients in turn.