Changing From Sole Proprietorship to Partnership

By Victoria E. Turnbull

The Journey from Sole Proprietorship to Partnership

If you are thinking of switching from a Sole Proprietorship to a Partnership, there are a few things to keep in mind. The change will have an effect on the financials, management, and operations. The following article will focus on the key steps that must be followed to ensure a smooth and successful change in the legal status of your business.

1. Ensure the partnership is fitting with the overall business plans and goals.  Will the partner bring necessary expertise, capital, or other assets to the business? The business plan may have to be slightly modified to ensure overall clarity. Don’t have a business plan yet?

2. With the assistance from a lawyer, draw up a Partnership agreement that clearly states the terms with regards to capital contributions, profits and losses, drawings, payment obligations, management direction, delegation, banking arrangements, and dissolving the partnership.

Thinking of making the switch from a Sole Proprietorship to another legal status such as a partnership? Get expert guidance to set you up for long term success.

3. Contact Service Ontario, or log into the appmybiz.gov.on.ca website, cancel the previous business registration and register a new business under the new legal structure. For more information, or to get started, visit the Service Ontario Website. 

4. Contact the CRA about changing the legal status of a business, at 1-800-959-5525; as most cases will require the closure of the current business number and CRA accounts, and re-register for new ones under a partnership status. To learn more about what changes will require a new account, check out the CRA website on changes of legal status.

There is quite a lot to consider when changing the legal status of a business. Make sure to seek professional guidance to ensure that everything is done properly. Not only is a lawyer highly recommended, a financial expert, such as an accountant, can help paint a clear picture of the operational and financial impacts a business will face with the change in structure. A professional accountant can also assist with contacting the CRA and making all the changes required for a Sole Proprietorship to be transferred into a Partnership.

DISCLAIMER:

THIS ARTICLE deals with a number of complex issues in a concise manner; it is recommended that accounting, legal or other
appropriate professional advice should be sought before acting upon any of the information contained therein.

Although every reasonable effort has been made to ensure the accuracy of the information contained in this letter, no individual or
organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of
liability for its contents or for any consequences arising from its use.