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Default Rules in Ontario Partnership Agreements

Issue No. 3:   March 2006

In one of my previous Newsletters ( See Issue No 7- July 2005), I had discussed the issue of presumptions. Some of the presumptions are so strong that they almost become default rules.

The typical partnership envisaged by Ontario Statutes is where all partners are equal, both in terms of their financial interests and in their right to participate in partnerships. The default rules of Ontario are very essential to understand because they are just based on certain partnerships presumptions and can be changed by the partners by agreement.

Let us now talk about Default rules in Ontario Partnership Act

·        Sec  20 – Any change or variation of default rules requires unanimous consent of all the partners

·        Sec  24.1 – Each partner shares equally both in the capital or the partnership and in any profits distributed and he must contribute equally in case of any losses

·        Sec 24.2 – Each partner is entitled to be indemnified in respect of payments made or liabilities incurred in the ordinary course of the partnership.

·        Sec  24.3 – In case a partner makes contribution in excess of the amount he had agreed to contribute, he is entitled to interest @ 5 % per annum on the excess contribution

·        Sec  24.4 – A partner is otherwise not entitled to any interest on his share contribution

·        Sec  24.5 – Each partner has a right to participate in the management of the partnership

·        Sec 24.7 – Admission of new partner requires unanimous agreement of existing partners

·        Sec  24.8 – Any change in the nature of partnership business requires unanimous agreement of the existing partners

·        Sec  24.9 – Each partner has equal access to the partnership books

·        Sec 25 – No majority of partners can expel a partner

·        Sec 26 – Also Sec 32 – Any partner may terminate partnership by giving notice

·        Sec 31 – Any person who takes an assignment of a partner’s interests, has no right as a partner – except to share the partnership profits to which the assigning partner would otherwise be entitled

I have just discussed the default rules of Ontario partnership agreements. They may be different in other Provinces. Please check them with your local Solicitor.

Otherwise, in Ontario, the default rules apply as default and it is always a good policy to discuss the issue of partnership agreements with a lawyer.

Gurcharan Singh Woodwal

Barrister and Solicitor

Woodwal Law Office

Westwood Mall: Unit 21-C

7205 Goreway Drive, Malton

Mississauga. ON. L4T 2T9

Phone 905- 908- 0022

Fax     905 -908 -0023