Fiduciary Duties Between Business Partners in Ontario

When two or more people become partners under Ontario’s Partnerships Act, they take on more than just a contractual relationship — they take on fiduciary duties to one another. A fiduciary duty is a legal obligation to act in good faith and in the best interests of the relationship, rather than simply pursuing one’s own self-interest wherever a contract happens to be silent. In the partnership context, this generally means a duty of loyalty, honesty, and full disclosure in matters connected to the partnership’s business.

These duties arise by default, under both the Partnerships Act and the common law, regardless of whether the partnership has a written agreement at all. They exist because partners place an unusually high degree of trust in one another — each partner can generally bind the others to obligations, access shared assets and confidential information, and make decisions that affect everyone’s interests, all without needing to get sign-off for every individual action.

Because of that trust and exposure, the law expects more from partners than it expects from parties to an ordinary commercial contract. A supplier and a customer generally owe each other nothing beyond what their contract says; partners generally owe each other an ongoing duty to act honestly and transparently in the conduct of the shared business, whether or not a specific situation happens to be addressed in writing.

These duties generally apply to every partner equally, regardless of how large or small their ownership share is, or how actively they’re involved in day-to-day operations. A minority partner who rarely sets foot in the business still generally owes the same fiduciary obligations as the partner running things day to day, and is still generally entitled to expect the same from the others.

A central piece of the fiduciary relationship between partners is the duty of full disclosure. Partners are generally expected to keep each other reasonably informed about matters affecting the partnership’s business, rather than withholding information that could affect another partner’s decisions or interests. This includes financial information, material risks, and opportunities that arise in connection with the partnership.

Good faith also generally means a partner shouldn’t use their position, or information they have access to because they’re a partner, to gain an advantage over the other partners. This can come up in surprisingly ordinary situations — for example, a partner who learns of a chance to buy out the partnership’s leased premises personally, or who negotiates a side deal with a key client, without telling the other partners first.

One of the clearest and most frequently litigated fiduciary obligations is the duty to account for any benefit received without the other partners’ consent. If a partner receives a payment, commission, discount, or other advantage in connection with partnership business — and doesn’t disclose and share it — that’s generally treated as a “secret profit” the partner may be required to hand over to the partnership.

This duty applies broadly. It can cover a kickback from a supplier the partnership deals with, an undisclosed fee for steering business a certain way, or quietly keeping for oneself an opportunity that properly belonged to the partnership because it arose through the partner’s role in the business. The underlying principle is consistent: a partner generally shouldn’t personally profit, at the partnership’s expense, from their position as a partner, unless the other partners know about it and agree.

Importantly, this duty generally applies regardless of whether the undisclosed benefit actually caused the partnership any direct financial harm. The focus is on the lack of disclosure and consent, not just on whether the other partners can show they lost money because of it.

This is also why the remedy for a secret profit is typically framed as an accounting, rather than as damages in the ordinary sense. The partnership generally doesn’t need to prove it was harmed by a specific dollar amount; it generally only needs to show that a benefit connected to partnership business was received and not disclosed, at which point the breaching partner can be required to hand it over.

Fiduciary duties also generally restrict a partner from operating a business that competes with the partnership while still a partner, at least without the other partners’ knowledge and consent. Quietly running a competing venture — one that draws clients, opportunities, or resources away from the shared business — is one of the more serious breaches a partner can commit, because it directly uses the partner’s position of trust against the interests of the people who trusted them.

This doesn’t necessarily mean a partner can never have any outside business interest. Many partnership agreements specifically address this by identifying permitted outside activities, or by requiring disclosure and consent before a partner takes on an outside role that could create a conflict. Being explicit about what’s permitted reduces the ambiguity that often turns a grey-area outside activity into an accusation of disloyalty.

Where no such carve-out exists, a partner considering an outside opportunity that even arguably overlaps with the partnership’s business is generally in safer territory disclosing it to the other partners first, rather than assuming it’s fine because it technically operates under a different name or entity.

Breaching a fiduciary duty can carry meaningful consequences. A partner found to have taken a secret profit or improperly competed with the partnership can generally be required to account for and repay that profit to the partnership, even if the other partners can’t point to a specific dollar amount they personally lost as a result. Courts have generally been willing to order this kind of disgorgement precisely to discourage partners from putting personal gain ahead of disclosure.

Depending on the severity and nature of the breach, other consequences can follow as well — compensation for losses the partnership suffered, removal or expulsion of the breaching partner where the agreement allows for it, or, in serious cases, a court application to dissolve the partnership altogether if the breach has fundamentally undermined the relationship of trust the business depends on.

Disputes over an alleged breach of fiduciary duty often hinge heavily on the partnership’s financial records and what was actually disclosed, and when. Our guide to common partnership disputes covers how these and other disagreements between partners are generally approached.

It’s worth pausing on why partnership law treats partners so differently from parties to an ordinary commercial deal. Two businesses negotiating a supply contract are generally expected to look out for their own interests, within the bounds of honesty and the terms they’ve agreed to — there’s no general duty for a supplier to put a customer’s interests ahead of its own. Partners, by contrast, have chosen to run a single business together, sharing authority, assets, and risk in a way that makes a higher standard of loyalty necessary for the relationship to function at all.

This is also why fiduciary duties generally can’t be fully contracted away, even though many other aspects of the partnership relationship can be. A partnership agreement can clarify how these duties apply to specific, disclosed situations, but the underlying expectation of good faith and honest dealing is treated as fundamental to what a partnership actually is in law.

Understanding this distinction matters for anyone entering a partnership: you’re not simply agreeing to a set of contractual terms with another business, you’re entering a relationship that the law expects to be conducted with a meaningfully higher degree of trust. Visit our Partnerships hub for related topics, or our contact page if you have questions about your specific situation.