The Canadian Limited Partnership (‘LP’) is increasingly used as a vehicle for the conduct of international transactions and the holding of investments.
Notwithstanding the fact that the Canadian LP does not have separate legal status (unlike for example the Scottish LP), the LP is an attractive holding arrangement for foreign investors with portfolios or other investments outside Canada.
Irrespective of the absence of legal personality, where a Canadian LP holds US portfolio investments, it may elect corporate tax treatment under US tax law while still maintaining its transparent taxation status under Canadian law.
Each province in Canada has its own distinct legislation governing the formation of LPs. We are able to assist clients with the formation of LPs in all relevant Canadian provinces.
Under the applicable legislation in each province, the LP will be formed by one or more General Partner(s) and one or more Limited Partner(s). The LP is required to have at least one of each. The partners are not required to be resident in Canada and individuals and corporate entities may be appointed to fulfil the role.
A Canadian LP will be formed through filing a declaration with the Registrar and based on the requirements of the province of Ontario, the following is an outline of the information to be disclosed (other provinces may have additional disclosure requirements):
- Name and address of the LP;
- Name and address of General Partner and General Partner’s signature;
- Statement of business of the LP (which may be as limited as ‘holding portfolio investments’);
- The LP will require a registered office address in its province of registration.
Subject to Registrar approval, the Canadian LP will be formed effective from the date of filing the declaration which will expire after five years unless it is replaced by an updated declaration, or a declaration of dissolution is filed before that date.
A private limited partnership agreement should also be prepared to govern the relationship between the partners.
Although there are no formal minimum capital requirements, the sum of CAD$1,000 is usually contributed initially.
The General Partner manages the affairs of the LP and will be liable for any debts of the LP. The General Partner will represent the LP in dealings with third parties. Natural persons, corporate entities and Trustees of Trusts may serve as General Partner.
Where the General Partner is a legal entity established outside of Canada, it will be required to make an application for an ‘extra-provincial’ license to allow it fulfil this role. This licence must be renewed annually and an annual return must also be filed.
The Limited Partnership must also have a minimum of one Limited Partner, which may be an individual, corporation, trust or private foundation and need not be a Canadian resident. US Trusts are commonly used to good effect in this role.
The Limited Partner details are not publicly disclosed and if the Limited Partner is a non-Canadian entity, extra provincial registration in the province is not required.
The Limited Partner’s liability is protected up to the amount of capital they contribute to the LP, however, this protection may be lost if the Limited Partner partakes in the management of the LP.
Related: Could A Nevada Trust Assist Your Wealth Management Objectives?
Tax TreatmentThe Canadian LP is considered a disregarded or ‘flow-through’ entity for Canadian tax purposes meaning that all profits / losses pass directly through and are attributed to the partners directly.
Where the Limited Partnership is engaged in trade or business outside of Canada, and the partners are non-Canadian residents, at the LP level, there will be no Canadian income tax and no corporate tax return is required to be filed. However, the partners may be subject to taxation and reporting obligations in their own jurisdiction, based on their share of the Partnership income / profits.