Limited Partnership

A limited partnership (LP) is a type of business structure in Canada that consists of two types of partners: general partners and limited partners. Limited partnerships are commonly used when some partners want to invest capital in a business without being actively involved in its management. This structure offers a way to combine the features of a partnership with limited liability for certain partners.

Here are the key features and characteristics of a limited partnership in Canada:

1. **General Partners:** General partners in a limited partnership have active roles in managing the business and are personally liable for the debts, obligations, and liabilities of the partnership. They have similar responsibilities and liabilities as partners in a general partnership.
2. **Limited Partners:** Limited partners are investors who contribute capital to the business but do not participate in the day-to-day management of the partnership. Their liability is limited to the amount of capital they have invested in the partnership. Limited partners’ personal assets are generally protected from the partnership’s liabilities beyond their initial investment.
3. **Liability:** The key distinction of a limited partnership is that limited partners have limited liability. This means that their personal assets are shielded from the debts and obligations of the partnership. However, if a limited partner becomes actively involved in the management of the business, they may lose their limited liability status.
4. **Partnership Agreement:** A written partnership agreement is highly recommended for limited partnerships. This agreement outlines the roles and responsibilities of general partners and limited partners, as well as how profits and losses will be distributed.
5. **Registration:** Limited partnerships are typically required to register with the appropriate provincial or territorial authority. This registration process includes providing details about the partnership’s structure, partners, and business activities.
6. **Name Registration:** Similar to other business structures, limited partnerships may need to register their business name under provincial or territorial business name registration laws if they operate under a name other than the legal names of the partners.
7. **Taxation:** A limited partnership itself does not pay income tax. Instead, the profits and losses of the partnership “pass through” to the partners, who report their share of the partnership income on their individual tax returns.
8. **Dissolution:** Limited partnerships can be dissolved through various means, including the withdrawal of a partner, fulfillment of a specified term outlined in the partnership agreement, or events such as the death or bankruptcy of a partner.

Limited partnerships offer flexibility by allowing investors to participate in a business venture while minimizing personal liability. However, the roles and responsibilities of general and limited partners, as well as the terms of the partnership agreement, should be carefully considered and documented to avoid potential disputes in the future. As with any business structure, seeking legal advice is recommended to ensure that all legal requirements are met and the partnership is set up in a way that aligns with the partners’ intentions.