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Corporations

Limited Partnerships (“LP”)

Limited Liability Partnership ("LLP")

Unincorporated Partnership


What is the main source of law authorising this entity form?

Partnerships Act.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

Has no separate legal personality;

(Maximum) period of existence

Has no maximum period of existence. Most partnerships are “at will” and have no set duration. It will continue until dissolved, unless otherwise agreed.

Governing document(s)

Is usually governed by a partnership agreement, but a written agreement is not required. If no partnership agreement exists, the default rules in the Partnerships Act apply.

Liability of incorporators / shareholders

Partners have unlimited liability for a partnership’s debts;

Other particularities

Exists where persons are carrying on a business in common with a view to profit. Whether a partnership exists is a matter of fact, and the parties cannot simply determine this for themselves. The Partnerships Act sets forth rules to assist in determining if a partnership has been formed;


Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Yes.


Can this type of entity be publicly listed or held?

No.


Can this type of entity be used for a non-profit or charitable organization?

No – the definition of a partnership under Canadian law includes the requirement that the people involved have a “view to profit”.



Give a brief summary of the process of incorporation, formation, or organization, including:

Main documents required

Partnership agreement is usually the main document – but there is no requirement for one.

Involvement of notary, company register, governmental authorities

Registration of the partnership is required under the Business Names Act (Ontario). The registration fee is $60 Canadian if filed electronically and $80 Canadian if filed by mail.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

A partnership agreement will usually detail the description/activities of the partnership.

No incorporation.


Minimum number of incorporators / shareholders and residency requirements

Minimum of 2 partners. No residency requirements.


Minimum number of directors (or other applicable officers) and residency requirements

Not applicable.


Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

No minimum capital but the amount of a partner’s capital contribution should be stated in the partnership agreement.


Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

Not applicable.


Is a tax identification number, or equivalent, required? If so, how is it obtained?

Not applicable - a partnership is not a taxable entity. The partners are taxed in their personal capacity for any profits or losses arising.



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 Registration under the Business Names Act will disclose the following:

  • Name of the partnership
  • Address of the partnership
  • A brief description of the activity of the partnership
  • Name and address of up to and including 10 partners



 


What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

Partners’ rights/responsibilities/duties are set out by statute (but are subject to contrary agreement as among themselves only in the partnership agreement) and include unless otherwise agreed by the partners:

Rights:

  • An entitlement to share capital and profits equally;
  • An obligation on the partnership to indemnify every partner in respect of payments made and liabilities incurred in the course of its business; and
  • An entitlement to interest on advances (beyond their capital contribution) to the partnership.

(No partner is entitled to remuneration for acting in the partnership business)

Responsibilities:

  • Requirement to take part in the management of the partnership;
  • All actions carried out by a partner in the ordinary course of business (including wrongful acts or omissions) bind the partnership and all the partners (who are liable jointly); and
  • Partners are liable jointly with the other partners for all debts and obligations of the partnership.

Duties:

  • To render true accounts and full information to any partner;
  • To account to the partnership for any benefit derived by him without the consent of the other partners from any transaction concerning the partnership, or from any use by the partner of the partnership property, name, or business opportunity;
  • To disclose any information about the business to each other; and
  • Not to compete with the partnership.

In equity, partners owe to each other fiduciary duties (that is a duty of utmost good faith).


How are the members of the executive body appointed, dismissed and replaced?

Unless otherwise agreed in the partnership agreement:

Appointment

  • Admission of new partners requires unanimous consent of the other partners; and
  • If a new partner is admitted, the new partnership is a partnership at will (unless the existing agreement caters for the admission of new partners who agree to be bound by its terms).

Leaving a partnership

  • Retirement;
  • Other partners exercising an express right to expel in a partnership agreement (otherwise must reach agreement with partner in question or apply to dissolve or wind up the partnership);
  • Death; or
  • Bankruptcy.

Is it possible to appoint corporate directors or must all directors be natural persons?

A partnership can have corporate partners.


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?

The partners are the owners who are entitled to both manage and own the partnership.


What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Subject to contrary agreement among the partners:

  • Decisions are taken by a majority of the partners except that no change can be made in the nature of the partnership business without the consent of all the existing partners.
  • No specific quorum requirements – usually set out in the partnership agreement.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

No.


What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

Subject to contrary agreement among the partners:

  • There is no express requirement to prepare accounts.
  • There is a duty to render true accounts and full information to any partner.
  • Partnership books are to be kept at the place of business of the partnership, or the principal place, if there is more than one, and every partner may have access to and inspect and copy any of them.

Is the entity permitted to determine its own financial year?

Yes – governed by partnership agreement.


Is the entity subject to any statutory (external) auditor obligations?

No.


Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

No.



What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

There is no specific designated title but usually “interest” or “units” are used.


Are different classes of ownership interests possible? If so, what are some examples of different classes?

The partnership agreement usually sets out any different interests as to profit/losses and capital allocations. If there is no partnership agreement in place, the default provision is that partners are entitled to share equally in the capital and profits/losses of the partnership.


What documentation is required for the transfer of ownership interests?

Governed by partnership agreement.


Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

No. Incoming partners will usually join the partnership by executing an adhesion agreement binding them to the terms of the partnership agreement, and outgoing partners will usually provide notice of retirement acknowledged by the partnership.


Are there any applicable stamp duties imposed when transferring ownership interests?

The disposition of a partnership interest may result in income tax becoming payable but no stamp duties are payable.


How are shares issued? (including information on payment obligations, registration requirements)

Not applicable.


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?

There are no shares issued so this is not applicable.


Any requirements with respect to share cancellation, share repurchase and other capital reductions

Not applicable.


Any requirements with respect to distributions to shareholders?

Governed by partnership agreement. Generally, profits are calculated annually but partners may take out money periodically against expected profits (called drawings).


Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes – 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 firm must renew its firm name under the Business Names Act every five years. Renewal fees of $80 Canadian when filing by mail or $60 Canadian when filing electronically must be paid.


What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The activities of a partnership are treated as carried on by the individual partners and not by the partnership as a body – so the partnership as a whole is not liable to pay tax.

Partners are taxed separately on their share of the profits or losses and where assets are disposed of each partner is treated as owning a share in every partnership asset so that each is liable for capital gains tax on the proceeds apportioned to them.

It is required to register for and collect GST/HST if it provides taxable supplies in Canada.

A partnership is required to file a partnership tax return on behalf of all the partners showing the profits/losses of the partnership.



Summary of any specific matters, e.g. recent or prospective major legal developments

None.


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