What is the main source of law authorising this entity form?
Limited Partnerships Act (Ontario)
Give a brief summary of the entity form:
Does the entity possess separate legal personality?
An LP is a legal relationship between its constituent partners but is not itself a legal entity or corporate body.
(Maximum) period of existence
An LP’s Declaration has an initial duration of 5 years after which it must be renewed, or it can be cancelled by filing a declaration of dissolution. There is no maximum duration for an LP, provided it continues to be renewed.
Governing document(s)
An LP is created by the registration of a Declaration with the Ontario Ministry of Government and Consumer Services.
Liability of incorporators / shareholders
An LP has two categories of partner which have different liabilities:
- The general partner is responsible for the management of the LP and has unlimited liability.
- The limited partners have limited liability up to the amount of money or property that they have contributed to the LP so long as the limited partners do not take part in the management of the LP.
(Governing) bodies
An LP is governed by a Limited Partnership Agreement.
Other particularities
The general partner is usually a single-purpose corporation.
LPs are often used for investment purposes by passive investors who act as the limited partners.
Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?
An LP can have international partners and can hold international assets.
Can this type of entity be publicly listed or held?
Yes, an LP’s interests or units can be traded as securities, subject to compliance with applicable securities law.
Can this type of entity be used for a non-profit or charitable organization?
Yes, in theory, but in practice LPs are not used for these purposes.
Give a brief summary of the process of incorporation, formation, or organization, including:
Main documents required
The LP Agreement is a private document and does not need to be filed with the Ministry of Government and Consumer Services.
Involvement of notary, company register, governmental authorities
An LP must be registered with the Ontario Ministry of Government and Consumer Services by the filing of a Declaration (Form 3).
Main costs, including registration and similar fees (excluding legal fees)
The above includes a $210 Canadian filing fee.
Minimum number of incorporators / shareholders and residency requirements
An LP must have at least one general partner and limited partner at any time. A person can be both a general partner and a limited partner at the same time, though this is not common as it could remove the limited partner’s limitation of liability.
There is no maximum number of partners.
Minimum number of directors (or other applicable officers) and residency requirements
An LP is managed by the general partner. There is no requirement for a general or limited partner to be resident in Canada.
Minimum share capital, or equivalent, and payment requirements (including opening a bank account)
A limited partner may make a contribution of money or property at the time of entry into the LP. This contribution must be recorded in the LP’s records.
Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?
There is no requirement for a general or limited partner to be resident in Canada. An LP which carries on business in Ontario is subject to the Limited Partnerships Act and must file a declaration in Ontario. The LP does need not to be permanently established in Ontario to take the form of an LP or to be subject to the Limited Partnerships Act.
Is a tax identification number, or equivalent, required? If so, how is it obtained?
LPs are not generally treated as taxable entities but they have tax filing obligations. The partners are taxed separately on their share of the profits or losses of the partnership. The LP will be issued a Business Identification Number (BIN) by the Canada Revenue Agency upon formation.
What is the title of the applicable company registry?
Ministry of Government and Consumer Services
What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:
The following information is required for the Declaration:
- Name of the LP which is to be registered;
- Address of the proposed principal place of business;
- General nature of the business;
- Name, address, and signature of the general partner; and
- Jurisdiction of formation.
The Declaration can be reviewed by the public.
The identity of the limited partners does not need to be filed with the Ministry of Government and Consumer Services but can be requested by the Ministry and a record of the limited partners (including their name, address, and amount of money or property contributed to the LP) must be maintained by the LP.
What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?
The general partner(s) have responsibility for managing the business of the LP. The limited partners must not take part in the control of the business of the limited partnership, or they will lose their limited liability status.
How are the members of the executive body appointed, dismissed and replaced?
The governance of the general partner will often be set out in the Limited Partnership Agreement.
Is it possible to appoint corporate directors or must all directors be natural persons?
The general partner(s) have responsibility for managing the business of the LP. The General Partner can be either a natural person or a corporation. Almost invariably the General Partner is a corporation.
Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?
Not applicable.
What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?
Not applicable – the general partner(s) have responsibility for managing the business of the LP.
What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?
The governance of the general partner will often be set out in the Limited Partnership Agreement.
Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?
Not applicable.
What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?
The LP must provide the limited partner(s) access to its records and provide information regarding matters affecting the LP.
Is the entity permitted to determine its own financial year?
Generally the fiscal year is the calendar year, but certain partnerships can elect a different year end.
Is the entity subject to any statutory (external) auditor obligations?
No. However, if the general partner is an Ontario business corporation, it may be required to either prepare audited financial statements or obtain an exemption from this requirement from each shareholder.
Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?
Not applicable.
What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?
These are typically termed ‘partnership units’.
Are different classes of ownership interests possible? If so, what are some examples of different classes?
Yes, the partners may set this out in the Limited Partnership Agreement.
What documentation is required for the transfer of ownership interests?
No filing is required. The LP must maintain its own records, including, a list of all general and limited partners.
Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?
A change to the declaration must be registered if the general partner changes.
Are there any applicable stamp duties imposed when transferring ownership interests?
While the disposition of a partnership interest usually results in income taxes, no stamp taxes are payable.
How are shares issued? (including information on payment obligations, registration requirements)
Generally, each of the partners are allocated a number of ‘partnership interests’ or ‘partnership units’ in accordance with the terms of the Limited Partnership Agreement.
Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?
Equity contributions are governed by the Limited Partnership Agreement.
Any requirements with respect to share cancellation, share repurchase and other capital reductions
None.
Any requirements with respect to distributions to shareholders?
The limited partners have a right to share in the profit/loss of the LP or other compensation.
Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?
Yes, this is usually set out in a Limited Partnership Agreement.
Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?
The LP’s Declaration must be renewed every 5 years. The renewal fee is $210 Canadian and there is a $150 Canadian penalty for late filing.
What are the general corporate tax rates? (Specify if there is a national versus local distinction).
LPs are not generally treated as taxable entities and are tax transparent. The partners are taxed separately on their share of the profits or losses of the partnership.
Taxation of Canadian partnership income paid to a non-resident will vary depending on the type of income, tax treaties and how the partnership interest is held. Generally Canadian withholding taxes will only apply to investment income paid through a partnership. A Limited Partnership is an ideal structure for minimizing Canadian tax liabilities and filing requirements for venture capital investing and carrying on an active business.
Summary of any specific matters, e.g. recent or prospective major legal developments
If any of the partners are non-residents and the partnership owns "Taxable Canadian Property", basically Canadian real estate or resource property, any sale of Taxable Canadian Property will require a tax clearance certificate. Even one non-resident partner can make any sale by the partnership subject to withholding tax under Part XIII of the Income Tax Act (Canada).