Nunatsiaq Online
COMMENTARY: Nunavut December 20, 2017 - 9:30 am

Legal Ease, Dec. 20

How can I be liable?

JAMES MORTON

Sometimes people end up liable for the debts of a business without realizing they are even formally in business.

That can happen because of a partnership.

Now, people usually think of a partnership as something fairly formal set up with documents and agreements—in such a case the partners of the partnership are very sure they are in a partnership and—usually—have an idea of their legal liability. 

But under the Partnership Act (Nunavut) a partnership can come into legal existence with virtually no formalities at all.

The Partnership Act says: “Partnership is the relation that exists between persons carrying on a business in common with a view to profit.”

What that means is if you, for example, buy a boat with your cousin with the intention of taking visitors from the South out for fishing trips and you plan to charge for the adventure, you are partners with your cousin.

Normally that would not be a problem except that, as soon as you are partners, you are both liable for each other’s acts while carrying on business and you can be held personally liable for a partnership debt.

Again, the Partnership Act says: “Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he or she is a partner and after the death of the partner, his or her estate is also severally liable, in the due course of administration, for those debts and obligations, so far as they remain unsatisfied but subject to the prior payment of his or her separate debts.”

So, if your cousin takes too many people out in the boat and someone gets hurt—even if you had nothing to do with the trip that day—you can be held personally liable for the injury.

It doesn’t matter if you were always careful and never took out too many passengers. Your cousin, your partner, did something wrong and you are both personally liable.

Similarly, any debts of the business are your debts personally. So, if you buy a photocopier and agree to pay for the photocopier over time, you are personally liable to pay for the photocopier even if the business fails.

What can you do to protect yourself?

One approach is not to go into business with anyone else except using a corporation, which may protect you, to a degree, from liability.

Another option is to be very clear, when you do go into business with someone else, as to who is doing what and when. Make sure that if you get into a partnership you can trust and rely on your partners. 

There is nothing wrong with a partnership as a way of doing business. I have been in several quite successful partnerships. In addition to those steps, you can also buy insurance and that is probably the best idea of all. 

No matter whether you are in a corporation, or a partnership or just working by yourself, insurance is a good idea.

If someone is injured at your place of business, having insurance means their claims, if any, will be taken care of and you do not have to worry about them.

James Morton is a lawyer practising in Nunavut with offices in Iqaluit. The comments here are intended as general legal information and not as specific legal advice.

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