Written by Ty Schmit
When embarking on a business venture, it is crucial to have clear definitions of roles and relationships of all interested parties involved in the venture. This can be especially important when seeking to create a formal business partnership, since such an arrangement gives rise to special legal obligations between the partners (as well as legal implications in the partners’ dealings with others). As illustrated by the cases discussed in this blog, sometimes this can be a challenge. Perhaps individuals will be so busy in the whirlwind of starting up a business that they neglect to provide sufficiently certain terms in their agreements, or maybe the alleged partners were never of one mind to even become partners to begin with. Since such errors can have legal consequences; persons should ensure that, if they actually intend to operate as a partnership, they draft an agreement that unequivocally shows that this is how they want their business to be defined.
Because the term “partner” is often colloquially used in describing a joint effort towards a common goal, a legally recognizable partnership will not be found solely by virtue of individuals referring to themselves as “business partners”. So then, what exactly is a partnership? The Partnership Act defines it as “the relation which subsists between persons carrying on a business in common, with a view of profit”. As evidenced by decades of case law on the subject, this is a description that can be interpreted in a large variety of ways. As a result, there has evolved a number of indicia that courts will consider to determine if a partnership exists between parties. Two recent cases from British Columbia have discussed these criteria, and they serve as a timely reminder of exactly what must be established in order to form such a partnership.
In the decision of Lacasse v. Nowak, two individuals began working together (during the beginning of the COVID-19 pandemic in April 2020) on a business to sell hand sanitizer. Within a few months, their relationship had deteriorated, resulting in Lacasse being kicked out of the business, and not being compensated for his efforts in establishing the business. Lacasse brought this proceeding in an effort to receive fair remuneration, and as part of the deliberation, the Court had to determine if the two individuals had formed a contract of partnership, or whether it was alternatively an employment contract, as asserted by Nowak. In her decision, Matthews J writes that “there must be agreement on the essential terms of the contract before the court may imply terms in order to give an agreement business efficacy”. She then derived a list of some terms on which there should be certainty, including:
- The parties who had agreed to carry on a business together with a view to sharing profits;
- The commencement date of the enterprise;
- The partnership property;
- The scope of the enterprise;
- The capital [contribution of each party];
- How the books and account are to be kept;
- How profits and losses are to be shared.
While considering the above factors, it was pointed out that all the arrangements made between the parties were oral agreements. While effect can be given to oral agreements, they are difficult to sufficiently support with evidence. Because nothing was in writing and because evidence showed the parties had clearly not agreed on certain critical terms, the Court concluded that there was not any kind of contract formed between Lacasse and Nowak. Interestingly, it was determined that the parties were indeed carrying on business in common with a view to profit, but the lack of certainty of terms rendered this point moot.
Similarly, in Paquette v. Wesolowski, the Court was again tasked with determining the existence of a binding partnership agreement.The parties were formerly in a common-law relationship together. During their relationship, they had acquired a vacant lot with the intention of developing a house on it. The relationship broke down before the house was completed, and it was eventually sold. Mr. Paquette sought to claim the proceeds of the sale by alleging that he and Ms. Wesolowski had entered into a formal business partnership to develop and sell real estate, and that Ms. Wesolowski misappropriated partnership property, breaching a fiduciary duty.
The court found that the couple’s plan to develop the property was not a partnership, once again due to a lack of a written agreement and clear evidence showing that the parties never had a meeting of the minds with respect to the essential elements of a partnership. In essence, “there was no express or implied agreement for the parties to enter into a legally binding arrangement in which they would buy a property, construct a house, sell it for profit, and equally divide the profits. The arrangement was much more fluid than this.” In turn, Riley J characterized the purchase of the property as a joint family venture for the purposes of building a life together, and found that no evidence pointed to their intentions being any more specific than that.
The following takeaways can be gleaned from the aforementioned decisions:
- Make no assumptions that a business partner intends to form a legally binding partnership. If it is truly the intention of both parties to form a partnership, draft a written agreement;
- To show a partnership existed in the absence of a written agreement, there must be clear evidence that the partners have agreed to essential terms such as (but not limited to) each party’s capital contributions, how work is to be divided, and how profits and losses will be shared;
- If it appears a prospective business partner has no intention to form a partnership, re-evaluate your own position in the relationship and try to ensure that your interests are protected;
- Attempting to recharacterize a life plan with a common law partner or spouse as a business partnership is not likely to be a successful method of obtaining judgment in the event of a breakdown.
 Paquette v Wesolowski, 2022 BCSC 2217 at para 76.
 Partnership Act, CCSM c P30.
 Ibid, s 3. This definition is essentially uniform across the country.
 Lacasse v Novak, 2022 BCSC 2219.
 Ibid at para 74.
 Ibid at para 77.
 Ibid at paras 126-127.
 Ibid at para 128.
 Paquette v Wesolowski, 2022 BCSC 2217.
 Ibid at para 72.
 Ibid at para 79.
The views and opinions expressed in the blogs and case reporter are the views of their authors, and do not represent the views of the Desautels Centre for Private Enterprise and the Law, the Faculty of Law, or the University of Manitoba. Academic Members of the University of Manitoba are entitled to academic freedom in the context of a respectful working and learning environment.