Determining and documenting the rights and obligations of the partners is much more involved. These rights, responsibilities and obligations are typically detailed in a partnership agreement. It is a good idea to have such an agreement for any partnership. A partnership is a legal entity recognized under the law and as such it has rights and responsibilities in and of itself. A partnership can sign contracts, obtain trade credit and borrow money.
Any partner is responsible for all liabilities of the partnership.
When a partnership is small creditors may require a personal guarantee of the partners before granting credit. A partnership does NOT have to file income tax returns or pay income tax. The financial information from the partnership is combined with the personal income of the partners to determine their overall tax liability. Partnerships with more than FIVE partners have to comply with Revenue Canada's reporting requirements. A corporation is a separate legal entity which exists under the authority granted by either provincial or federal law.