Going into business with a partner without a written agreement is one of the most common — and costly — legal mistakes BC business owners make. Here's what a partnership agreement should cover and why BC's default partnership rules rarely protect you.
Starting a business with a partner can be exciting — but without a written partnership agreement, you are relying on BC's Partnership Act to fill the gaps. Those default rules rarely reflect what partners actually intended, and they can create serious problems when disagreements arise.
What Is a Partnership Agreement?
A partnership agreement is a legally binding contract between two or more people who are running a business together. It sets out each partner's rights, responsibilities, profit share, and what happens if someone wants to leave or if the business needs to be wound up.
Without one, BC's Partnership Act applies — and it assumes equal profit splits, equal decision-making authority, and no compensation for partners who contribute more work or capital than others. That default rarely matches reality.
General Partnerships vs. Limited Partnerships in BC
BC recognizes two main types of partnerships:
General partnership: All partners share management duties and are personally liable for the business's debts. Creditors can come after your personal assets if the business can't pay.
Limited partnership: Has at least one general partner (who manages and bears full liability) and one or more limited partners (who invest but don't manage and whose liability is capped at their investment). Limited partnerships must be registered with BC Registries.
Many BC business owners incorporate instead of forming a partnership — a corporation limits personal liability and offers tax advantages. A lawyer can help you choose the right structure.
What a Partnership Agreement Should Cover
A well-drafted BC partnership agreement should address:
Capital contributions: How much each partner is putting in — cash, property, or sweat equity — and whether contributions are equal.
Profit and loss sharing: The default under the Partnership Act is 50/50 regardless of effort. Your agreement can change this.
Decision-making: Which decisions require unanimous consent, which require a majority, and which one partner can make alone.
Roles and duties: Who manages day-to-day operations, who handles finances, who is the signing authority.
Partner compensation: Whether partners receive salaries or draws, and how expenses are reimbursed.
Dispute resolution: How disagreements are handled — negotiation, mediation, or arbitration — before court becomes necessary.
Exit provisions: What happens if a partner wants to leave, retires, becomes incapacitated, or dies. Can they sell their interest? To whom? At what price?
Non-compete and non-solicitation clauses: Restrictions on a departing partner competing with the business or poaching clients and staff.
Dissolution: The process for winding up the partnership — how assets are distributed, debts paid, and liabilities allocated.
What Happens Without a Partnership Agreement in BC
If your partnership has no written agreement and a dispute arises, the Partnership Act applies. This means:
Profits and losses are split equally, even if one partner works full-time and the other is passive.
Any partner can dissolve the partnership at any time by giving notice — with no buyout obligation.
There is no mechanism to remove a problem partner; you may have to go to court.
A partner's death or bankruptcy can trigger automatic dissolution of the entire business.
These outcomes can be devastating for a business that has been operating for years. The cost of a lawyer drafting a partnership agreement upfront is a fraction of the cost of litigating a partnership dispute later.
Partnership Disputes in BC
When a partnership dispute cannot be resolved between the partners, BC courts can intervene. Common disputes include disagreements over profit distributions, one partner freezing out another from management, allegations of misappropriation of partnership funds, and disputes over whether a partnership even exists.
Under the Partnership Act, a court can order the dissolution of a partnership and appoint a receiver to manage the wind-up. This is expensive and disruptive — mediation or arbitration under a partnership agreement is almost always faster and cheaper.
When to Get Legal Help
You should consult a BC business lawyer if you are forming a new partnership, adding a new partner to an existing business, dealing with a partner who is not meeting their obligations, considering buying out a partner's interest, or facing dissolution of the partnership. A lawyer can also help you determine whether incorporating is a better option than operating as a partnership.
You are not legally required to have a written partnership agreement in BC, but without one the Partnership Act's default rules apply — including equal profit splits and the right of any partner to dissolve the business at any time. A written agreement protects everyone and prevents costly disputes.
In a general partnership, all partners share management and personal liability for debts. In a limited partnership, general partners manage and bear full liability while limited partners invest but do not manage — their liability is capped at their investment. Limited partnerships must be registered with BC Registries.
Under BC's Partnership Act, a partner can dissolve a general partnership at any time by giving notice to the other partners, unless the partnership agreement restricts this. A well-drafted agreement typically requires notice, a buyout process, and non-compete obligations before a partner can exit.
Under the Partnership Act default rules, a partner's death automatically dissolves the general partnership. A partnership agreement can include provisions to continue the business — for example, allowing surviving partners to buy out the deceased partner's estate at a pre-agreed valuation formula.
A partnership agreement sets out how business partners share profits, make decisions, contribute money and time, and what happens if someone wants to leave or dies. Without one, default rules can produce results nobody intended.
Key terms often cover ownership percentages, decision-making thresholds, dispute resolution, buy-sell provisions, and how a departing partner is valued and paid out. Planning for these moments while everyone still agrees is far easier than negotiating them later.
Our business law team can review or draft a partnership agreement for you by phone or secure video, starting with a free intake call to understand your situation.