Business partners shaking hands and smiling with colleagues looking on approvingly, representing the formation of a new business partnership agreement in Ontario and BC

Partnership Agreements in Ontario and BC: What to Include and Why It Matters for Dispute Prevention

Date: June 11, 2026

Most partnership disputes that end up in litigation have one thing in common: the partners either had no written agreement, or had one that did not address the situation that eventually arose. A partnership built on trust and a handshake can function well when things are going smoothly. It becomes fragile the moment a partner wants to exit, a significant financial decision is contested, or one partner believes the other is not pulling their weight.

A well-drafted partnership agreement does not eliminate the possibility of disagreement. What it does is give the parties a clear, enforceable framework for resolving disagreements before they become disputes, and disputes before they become litigation. This article explains what a partnership agreement must cover in Ontario and BC, the default rules that apply without one, the specific clauses that prevent the most common disputes, and the drafting mistakes that most consistently produce litigation. For what happens when partnership disputes do escalate, see our guide to understanding partnership disputes in Ontario and BC.

Why a written agreement matters more than trust
Partners who trust each other at the outset often assume they do not need a written agreement. The problem is that a partnership agreement is most important precisely when the relationship has broken down and trust no longer exists. By that point, it is too late to negotiate the terms. A written agreement negotiated in good faith at the start of the relationship is the most cost-effective dispute prevention tool available.

In both Ontario and BC, without a written agreement, the default statutory rules apply. Under Ontario's Partnerships Act and BC's Partnership Act, profits and losses are shared equally regardless of unequal contributions, every partner has an equal say in management regardless of their actual role, and any partner can dissolve the partnership on notice. These defaults frequently do not reflect what the partners intended and are a consistent source of disputes.

What happens without a written partnership agreement

In Ontario, partnerships without a written agreement are governed by the Partnerships Act, RSO 1990, c P.5. In BC, they are governed by the Partnership Act, RSBC 1996, c 348. Both statutes provide default rules that apply where the partners have not agreed otherwise.

The default rules include equal sharing of profits and losses regardless of each partner's capital contribution or workload, equal participation in management decisions, no salary for any partner for acting in the partnership business beyond their profit share, unanimous consent required for admitting new partners, and the right of any partner to dissolve the partnership at any time on notice. These rules may be appropriate for some partnerships, but they frequently do not reflect the actual arrangement the partners intended, particularly where one partner has contributed more capital, takes on more management responsibility, or plays a different role than the others.

Where partners operate without a written agreement and a dispute arises, the court must determine the actual terms of the partnership from oral evidence, course of dealing, and whatever documentation exists. This is expensive, uncertain, and often produces outcomes that neither partner would have agreed to if they had addressed the issue at the outset.

A partnership agreement is not just about what happens in a dispute. It is about creating shared clarity between the partners about roles, expectations, financial arrangements, and exit rights so that the relationship has a clear operational framework from day one. The conversation required to negotiate a partnership agreement surfaces misaligned expectations before they produce a conflict.

Key clauses every partnership agreement should include

Capital contributions Document each partner's financial and in-kind contributions to the partnership, the basis on which future capital contributions may be required, and how the partnership will be funded if additional capital is needed. Disputes over unequal contributions and who is required to contribute more are among the most common early-stage partnership conflicts.
Profit and loss distribution Specify how profits and losses will be divided: equally, proportionally to capital contributions, proportionally to time contributed, or on some other agreed basis. Where the distribution is not equal, document the agreed rationale so it cannot be disputed later. This clause overrides the equal-sharing default under both the Ontario and BC statutes.
Roles and decision-making authority Define each partner's role and the scope of their authority to bind the partnership. Specify which decisions require unanimous consent, which require a majority, and which can be made by individual partners in the ordinary course. Ambiguity about decision-making authority is one of the most common sources of management disputes in closely held partnerships.
Buy-sell clause Address what happens to a partner's interest when they exit: how the interest will be valued, who can purchase it, whether remaining partners have a right of first refusal, the payment timeline and mechanics, and how the interest is treated on death, disability, or retirement. Without a buy-sell clause, partner exits produce the most costly and contentious disputes in partnership litigation.
Dispute resolution Include a mechanism for resolving disputes short of litigation: mediation, arbitration, or a defined negotiation process. A dispute resolution clause that requires the parties to attempt mediation before commencing court proceedings can preserve the relationship and significantly reduce the cost of resolving disagreements. It can also be a condition precedent to any proceeding, giving both sides an incentive to engage meaningfully.
Non-compete and confidentiality Protect the partnership from a departing partner competing with the business or using confidential information such as client lists, pricing, and trade secrets after they leave. Non-compete clauses must be reasonable in scope, duration, and geographic reach to be enforceable in both Ontario and BC. Confidentiality obligations are more broadly enforceable and should be drafted comprehensively.

The buy-sell clause: the most important and most neglected provision

Partner exits produce more litigation than any other single scenario in partnership law. A partner who wants to leave, a partner who dies, a partner who becomes incapacitated, a partner who wants to force out another: each of these situations requires a clear framework for what happens to the departing partner's interest. Without one, the partners end up in court arguing about valuation, rights of purchase, and payment terms under circumstances that are already emotionally charged.

Valuation mechanism

Specify how the partnership interest will be valued for buyout purposes: by agreement, by an independent valuator, or by a formula. A formula approach provides certainty but may not capture the true value at the time of exit. An independent valuator provides accuracy but takes time and costs money. Whatever the mechanism, it should be specified in advance so neither party can later argue the valuation was unfair. The Gierc Jr. v. Wescon Cedar Products Ltd. case from BC confirms that courts defer substantially to expert valuation evidence, making the choice of mechanism in the agreement consequential.

Right of first refusal

Give remaining partners the right to purchase a departing partner's interest before it can be offered to an outside buyer. This prevents a stranger from being admitted as a partner without the consent of the remaining partners. The right of first refusal should specify the period within which it must be exercised, the price at which it applies, and what happens if no remaining partner exercises it.

Death and disability

Address what happens to a partner's interest if they die or become permanently incapacitated. Without this clause, a deceased partner's interest may pass to their estate, which becomes a new partner with full rights to participate in management. The estate's interests and the surviving partners' interests are frequently misaligned. Life insurance funded buy-sell arrangements can provide the liquidity to fund a buyout in these circumstances without disrupting the partnership's operations.

Forced exit provisions

Consider including provisions for compelling a partner to exit where their conduct has materially harmed the partnership, such as breach of fiduciary duty, fraud, or persistent failure to perform their obligations. This provides a contractual mechanism for removing a problematic partner that can be faster and cheaper than a court application for dissolution, which is the alternative where no such provision exists.

Operating a partnership in Ontario or BC without a written agreement, or with one that has not been updated since the business changed?

The default statutory rules may not reflect what you intended when you entered the partnership. A dispute resolved under those rules will produce an outcome neither partner may recognize as fair. Get legal advice on whether your current arrangement adequately protects your position before a disagreement arises.

Call: 1-800-771-7882 Review Your Partnership Agreement Now

Common drafting mistakes that produce disputes

The following drafting problems are the most consistent sources of partnership litigation in Ontario and BC. Each one represents a gap that becomes a dispute when the relevant situation arises.

  • Generic templates that do not address the specific arrangement. Online templates are designed for a generic partnership, not yours. A template that assumes equal contributions and equal decision-making authority will produce disputes in any partnership where those assumptions do not hold. The agreement must reflect the actual arrangement the parties have negotiated.
  • No valuation mechanism for the buy-sell clause. A buy-sell clause that requires the partners to agree on value at the time of exit provides no real protection. Partners who disagree enough to trigger the buy-sell clause will not agree on value. The valuation mechanism must be specified in advance.
  • Ambiguous profit-sharing provisions. Provisions that share profits "equitably" or "proportionally to contribution" without defining what equitable means or how contribution is measured produce disputes at year-end. Specify the formula precisely.
  • Failure to address what happens when partners disagree on a major decision. Every partnership that requires unanimous consent for major decisions needs a deadlock-breaking mechanism. Without one, disagreement on a major decision can paralyze the business indefinitely.
  • Outdated agreements that no longer reflect the partnership. A partnership agreement that was adequate when the business had two equal partners and one location may be wholly inadequate when the business has grown, taken on new partners, or changed its structure. Agreements must be reviewed and updated as the business evolves.
  • Non-compete clauses that are unenforceable. An overly broad non-compete clause that prohibits a departing partner from working in the industry anywhere in the country for ten years will not be enforced by courts in Ontario or BC. The clause must be reasonable in scope, geography, and duration to be enforceable. An unenforceable non-compete provides no protection at all.

Starting a partnership in Ontario or BC, or operating in one without an adequate written agreement?

The time to address the terms of a partnership is before a dispute arises, not after. A well-drafted agreement negotiated in good faith at the outset is the most cost-effective protection available to both partners.

Get Advice on Your Partnership Agreement Or call us: 1-800-771-7882

Practical takeaways

Without a written agreement, the default rules of Ontario's Partnerships Act or BC's Partnership Act apply: equal profit sharing, equal decision-making, and the right of any partner to dissolve on notice. These defaults frequently do not reflect what the partners intended.
A partnership agreement must address capital contributions, profit and loss distribution, roles and decision-making authority, the buy-sell clause, dispute resolution, and non-compete and confidentiality obligations for departing partners.
The buy-sell clause is the most important and most frequently neglected provision. Partner exits without a buy-sell clause produce the most costly and contentious disputes in partnership litigation. The valuation mechanism must be specified in advance, not left to agreement at exit.
Non-compete clauses must be reasonable in scope, duration, and geographic reach to be enforceable in Ontario and BC. An overly broad clause will not be enforced and provides no protection at all. Confidentiality obligations are more broadly enforceable and should be drafted comprehensively.
Generic online templates do not address specific arrangements and produce disputes. A partnership agreement must reflect the actual arrangement the parties have negotiated, not a generic framework that assumes equal contributions and equal decision-making.
Partnership agreements must be updated as the business evolves. An agreement that was adequate when the partnership was formed may be wholly inadequate after the business has grown, taken on new partners, or changed its structure.

Frequently asked questions

Is a partnership agreement legally required in Ontario and BC?

No. A written partnership agreement is not legally required in Ontario or BC. Without one, the default rules of Ontario's Partnerships Act or BC's Partnership Act apply. These defaults include equal profit sharing, equal management rights, and the right of any partner to dissolve the partnership on notice, regardless of what the partners may have intended. A written agreement allows partners to replace these defaults with arrangements that reflect their actual business relationship.

What should a partnership agreement include in Ontario and BC?

A well-drafted agreement should cover capital contributions, profit and loss distribution, decision-making authority, a buy-sell clause governing exits and succession, a dispute resolution mechanism, and non-compete and confidentiality obligations for departing partners. The agreement should be specific to the actual arrangement between the partners, not based on a generic template.

What happens if partners operate without a written partnership agreement?

The default provisions of Ontario's Partnerships Act or BC's Partnership Act apply. Under the Ontario Act, profits and losses are shared equally, every partner has equal management rights, and any partner can dissolve the partnership at any time on notice. These defaults frequently do not reflect what the partners intended and are a consistent source of disputes.

What is a buy-sell clause in a partnership agreement?

A buy-sell clause governs what happens to a partner's interest when they leave the partnership. It specifies how the interest will be valued, who can purchase it, whether remaining partners have a right of first refusal, and the payment terms for the buyout. Without a buy-sell clause, partner exits produce the most costly and contentious disputes in partnership litigation.

How does a partnership agreement differ from a shareholders' agreement?

A partnership agreement governs partners in a general or limited partnership under Ontario's Partnerships Act or BC's Partnership Act. A shareholders' agreement governs shareholders in an incorporated corporation under the Ontario Business Corporations Act, the Canada Business Corporations Act, or BC's Business Corporations Act. Both serve similar protective functions but operate under different legal frameworks. The choice of business structure determines which type of agreement is appropriate.

Starting a partnership in Ontario or BC or operating without an adequate agreement? Tell us what's happening.

Whether you are negotiating the terms of a new partnership and want an agreement that will hold up when things get difficult, reviewing an existing agreement that no longer reflects your current arrangements, or dealing with a dispute that has arisen because the agreement does not address the situation you are in, Achkar Law advises on business partnership disputes and agreements across Ontario and British Columbia. We will assess your position and advise on the terms that protect your interests both now and when the relationship faces its inevitable pressures.

Call us at 1-800-771-7882 or fill out the form below and we will be in touch.