Nick Wright, BA JD MBA LLM (Tax)

Wright Business Law

The limited partnership remains the dominant structure for private investment funds in Ontario, particularly in real estate, private equity, infrastructure, private credit, and other alternative asset classes. Its commercial flexibility, tax transparency, and ability to allocate governance to the general partner (GP) while concentrating economics with limited partners (LPs) make it a natural fit for Canadian fund sponsors. 

Yet building a compliant and sustainable GP/LP platform requires navigating intersecting layers of law, including partnership statutes, securities law (especially NI 45-106 and NI 31-103), tax rules, corporate structuring requirements, and the regulatory expectations applied to investment funds. For first-time sponsors and experienced managers alike, the process is less about forming a single entity and more about designing a durable legal ecosystem that can support capital raising, operations, and long-term investor relationships.

Sophisticated sponsors need to understand not only how to form a limited partnership under Ontario law, but also how the limited partnership (LP) structure interplays with prospectus exemptions, investment fund definitions, registration requirements, fiduciary duties, and ongoing compliance. A properly structured GP/LP platform balances sponsor control, investor protection, tax efficiency, and regulatory compliance. This article outlines the governing legal framework, key definitions, formation steps, grey areas, practical risks, and the regulatory considerations that increasingly shape Ontario’s private investment fund landscape.

Regulatory Framework and Sources of Law

The foundation of an Ontario GP/LP investment fund is the Limited Partnerships Act (Ontario) (the “LPA”), which governs formation, liability, dissolution, and statutory requirements such as filing a declaration of limited partnership. From a securities law perspective, the primary authorities include the Securities Act (Ontario), NI 45-106 Prospectus Exemptions, NI 31-103 Registration Requirements, Exemptions and Ongoing Obligations, and applicable OSC and CSA Staff Notices. 

Under s. 1(1) of the Securities Act (Ontario), limited partnership units constitute “securities.” As a result, their distribution is subject to the prospectus requirement in s. 53 and the dealer registration requirement in s. 25, unless an exemption applies. Most private funds rely on the Accredited Investor exemption or the Offering Memorandum (OM) exemption, triggering disclosure and filing obligations under NI 45-106. If the GP or management entity engages in advising or trading activities, it must register under NI 31-103 unless it can clearly rely on a specific, enumerated registration exemption in that instrument, such as the s.8.5 ‘trades through a registered dealer’ exemption that allows the use of a third-party registered dealer when certain requirements are met.

While a limited partnership distributing securities in Ontario may rely on prospectus and registration exemptions under NI 45-106 and NI 31-103, those exemptions do not remove the structure from regulatory scrutiny. In particular, where investors are passive and reliant on the manager—whether or not the partnership meets the statutory definition of an investment fund—Canadian securities regulators, coordinated through the CSA and administered in Ontario by the Ontario Securities Commission (OSC), generally expect governance and compliance frameworks commensurate with fund-like investor reliance, including conflicts management, valuation and NAV policies, compliance systems, complaint handling, and investor reporting practices.

Definitions and Thresholds

The statutory architecture of an Ontario limited partnership fund is grounded in three core elements: the limited partnership (LP) as a legal entity, the general partner (GP), and the limited partners (LPs). Under the Limited Partnerships Act (Ontario), an Ontario limited partnership must have at least one general partner with unlimited liability for the obligations of the partnership and at least one limited partner whose liability is limited to the amount of capital contributed, provided that the limited partner does not take part in the control of the partnership’s business. The statute does not exhaustively define what constitutes “control.” As a result, courts assess participation in control by reference to common-law partnership principles and a contextual, substance-over-form analysis. In that regard, the Supreme Court of Canada in Continental Bank Leasing Corp. v. Canada emphasized that partnership characterization depends on the totality of the relationship rather than formal labels. To preserve statutory limited liability, limited partners therefore typically refrain from voting on operational or management matters, acting on behalf of the partnership, or otherwise participating in the conduct of the partnership’s business, except for protective or investor-level approvals expressly contemplated by the partnership agreement.

From a securities law standpoint, the thresholds embedded in NI 45-106 are central. The definition of accredited investor in NI 45-106, s. 1.1 includes individuals with financial assets exceeding $1M (net of related liabilities) or income of at least $200,000 (or $300,000 with a spouse), as well as institutional investors, funds-of-funds, family offices, and other qualified purchasers. Where issuers use the offering memorandum exemption, investors must complete risk acknowledgment forms and may be subject to investment caps.

For registration in Ontario, the analysis is framed by the statutory adviser and dealer business triggers in the Securities Act (Ontario), particularly s. 25. Entities that direct or manage pooled securities investment decisions are assessed on whether they are engaging in, or holding themselves out as engaging in, the business of advising others as to investing in or the buying or selling of securities. A fund manager conducting registrable activities must register in the appropriate category under NI 31-103, including as an exempt market dealer (EMD), investment fund manager (IFM) or portfolio manager (PM), unless a specific, codified registration exemption within NI 31-103 clearly applies. 

Application in Practice

Forming a GP/LP investment fund typically begins with creating a special-purpose general partner, usually a corporation to contain liability, and a management or advisory entity that will provide investment management services, as applicable. The GP often delegates day-to-day management to the adviser or asset manager through a management agreement, establishing the governance hierarchy. Once the GP is incorporated, the sponsor prepares the Limited Partnership Agreement, setting out capital commitments, drawdown mechanics, distribution waterfalls, preferred returns, governance rights, conflicts protocols, and limitations on LP liability.

The LP is formed by filing a Declaration of Limited Partnership (Form 3) with the Ontario Ministry of Public and Business Service Delivery and Procurement. This filing creates the LP as a separate legal form distinct from its partners, though not a separate legal person. Sponsors then draft subscription documents, investor rights agreements (if applicable), and any side letters addressing fee breaks, reporting rights, or protections for institutional LPs. The offering documents should clearly articulate the fund strategy, risks, and management structures and must comply with NI 45-106 disclosure rules if using the offering memorandum (OM) exemption.

Capital raising involves ensuring each investor qualifies under the selected exemption. For individual accredited investors, for example, the issuer must obtain completed Form 45-106F9 to demonstrate category-specific qualification. Ontario regulators take the view that issuers must actively verify investor status when appropriate given the investor profile. After closing each tranche of investment, the issuer must file Form 45-106F1 on SEDAR+ with payment of the associated fee to the OSC within 10 days of closing.

Ongoing operations of a private investment fund are conducted through its GP and, where engaged, an external fund or asset manager. The issuer, and where a registrant is involved, the registered firm, are responsible for ongoing operational compliance, including the maintenance of proper books and records; accurate investor, beneficial ownership, and subscription records; documented conflicts-of-interest and related-party transaction policies; and appropriate valuation governance procedures.

Where the fund issuer relies on a prospectus exemption that imposes disclosure or investor-protection conditions, such as the offering memorandum exemption, those conditions typically include the preparation of audited annual financial statements, the establishment of NAV calculation policies, and prescribed redemption or liquidity controls. The legal obligation to register arises under the Securities Act (Ontario) when applicable business activity triggers are met; NI 31-103 governs the conduct and compliance obligations of firms once registration is required.

Although NI 81-106 primarily applies to reporting issuer investment funds, a registered manager of an exempt-market private fund that offers periodic liquidity or publishes a calculated NAV should expect regulatory scrutiny of its valuation, governance, and operational controls. In practice, the OSC may assess those controls against standards reflected in NI 81-106 and industry norms, particularly where investors are passive and reliant on the manager’s NAV determinations.

Grey Areas and Regulator Focus

Regulators increasingly scrutinize the substance over form of limited partnership fund structures. Classifying whether a limited partnership meets the status characteristics of an investment fund is a nuanced, fact-driven analysis. Structures offering redemption rights, featuring passive investor participation, and employing pooled discretionary investment management are more likely to satisfy the definitional characteristics used for status analysis, including those in NI 81-106. Development-stage real estate LPs can fall outside investment fund status where investors hold meaningful, exercisable control rights and the partnership’s activities substantively resemble an operating business rather than a vehicle for trading or advising on securities. Where a general partner or external manager meets adviser, dealer, or investment fund manager business triggers, regulatory oversight by the OSC focuses on registration or valid reliance on applicable exemptions. This includes scrutiny of formation-stage activities, fund launch marketing, offering materials, out-of-province solicitation, marketing claims, and exempt-market capital-raising conduct, to determine whether activities are properly registered or exempt under NI 31-103 and consistent with the registration duty originating in the provincial statute.

Another grey area involves LP limited liability. Under the LPA, LPs risk losing limited liability if they participate in the “control of the business.” While the statute lists certain safe harbours, the jurisprudential boundaries remain imprecise and fact-specific. Institutional LPs frequently negotiate enhanced governance rights, and sponsors must ensure these rights do not cross into management activity.

The OSC may scrutinize side-letter arrangements to assess whether their economic or governance impact materially prejudices other investors, creates unfairness, or conflicts with representations made in offering or marketing materials. Partnership-level fee discounts, enhanced reporting rights, or co-investment or allocation arrangements must conform to the governing limited partnership agreement. Disclosure to investors is required when mandated by the prospectus exemption relied on, when periodic liquidity or a calculated NAV is offered, or when valuation practices or preferential economics are a material representation in offering or marketing materials. Regulators also assess valuation practices for illiquid private funds, including real estate and private credit vehicles, to confirm that policies are documented, verifiable, consistently applied, and operationalized in a repeatable governance framework.

Interactions with Adjacent Regimes

The LP structure must be harmonised with other regulatory regimes. Under NI 31-103, fund managers face obligations relating to KYC, KYP, suitability (if registered as an adviser or dealer), referral arrangements (s. 13.7–13.10), and custody requirements (Part 14). Even when relying on registration exemptions, the OSC expects managers to maintain governance and compliance systems proportionate to the fund’s size and complexity.

Tax considerations are central because a limited partnership is generally treated as a flow-through vehicle under the Income Tax Act (Canada). Many sponsors structure the GP as a corporation to preserve limited liability and to facilitate management fee revenue recognition. Carried interest is often allocated to a separate class of partnership units subscribed for by a GP-owned entity. Cross-border investors introduce U.S. tax, passive foreign investment company (PFIC), and Foreign Investment in Real Property Tax Act (FIRPTA) considerations, often necessitating parallel funds or feeder structures.

Real asset funds, particularly real estate funds, may require compliance with provincial planning legislation, land transfer tax statutes, and, where applicable, Canada Mortgage and Housing Corporation (CMHC) program requirements or mortgage broker, lender and administrator rules under Ontario law. Mortgage lending LPs may attract increased scrutiny under Ontario securities law where they operate as pooled vehicles investing in mortgages. By contrast, Mortgage Investment Corporations are tax defined entities governed by specific provisions of the Income Tax Act (Canada).

Illustrative Scenarios

A first-time real estate sponsor launching a development LP typically begins by creating a single-purpose GP corporation, forming an LP, preparing a limited partnership agreement (LPA) with economic terms that balance investor protections with operational flexibility and by preparing an offering package drafted to rely on specified prospectus exemptions under NI 45-106. Because, in this example, capital will be raised using the Accredited Investor exemption, the sponsor must verify investor qualifications and file Form 45-106F1 after each closing. If the manager exercises discretionary authority over the fund’s portfolio, the registration analysis will turn on whether it is “in the business of” advising or trading in securities, such that adviser, dealer, or investment fund manager registration under NI 31-103 is required absent a specific exemption. Often a third party exempt market dealer (EMD) will be used under the NI 31-103, s. 8.5 ‘trading through a registered dealer’ exemption to registration. 

A private credit sponsor contemplating a pooled lending LP may face additional complications. If the underlying assets are securities, the GP’s management activity likely triggers adviser registration. If the fund provides periodic redemptions, the LP may be viewed as an investment fund, bringing NI 81-106 expectations on valuation and disclosure. The sponsor may need to build a more robust compliance framework, including third-party valuation and enhanced reporting.

In a more complex scenario, a fund-of-funds LP investing in Canadian and U.S. alternative funds must navigate both NI 45-106 and U.S. rules, such as Regulation D for cross-border capital raising. Side letters addressing MFN clauses or reporting rights must be handled carefully to avoid prejudice to other LPs. The manager will need strong KYC/AML systems under NI 31-103 and may need to comply with FATCA/CRS reporting.

Compliance Checklist

Formation and Structure

• Establish GP, LP and management company with clear separation of roles, authority, and liability allocation
• Document governance framework and decision-making authority
• Confirm Ontario law structuring considerations and securities regulatory alignment

Limited Partnership Agreement

• Define economic terms with precision including capital commitments, drawdowns, distributions, carried interest,  and management fees
• Allocate governance rights, advisory committee structure, and amendment mechanics
• Address fiduciary duties, conflicts of interest, and standard of care
• Limit liability appropriately and clarify indemnification scope
• Align removal provisions and key person clauses with commercial objectives

Capital Raising and Exempt Market Compliance

• Map offering strategy to applicable NI 45-106 exemptions
• Confirm accredited investor verification and subscription review procedures
• Prepare compliant offering memorandum, if used
• File Form 45-106F1 within prescribed timelines
• Maintain subscription documentation and exemption audit trail

Regulatory and Operational Compliance

• Implement conflict of interest policies
• Establish valuation policies and fair value procedures
• Confirm custody arrangements and asset segregation controls
• Implement cybersecurity and data protection protocols
• Review marketing materials for securities law compliance
• Establish investor reporting and disclosure framework

Ongoing Operations

• Maintain disciplined books and records
• Deliver timely financial statements and tax reporting
• Monitor regulatory filings and exemption conditions
• Ensure consistent and documented communication with LPs
• Periodically review compliance systems and governance practices

What's Changing

The CSA continues to examine the regulatory perimeter around private funds, including proposals to update NI 45-106 risk acknowledgment forms, expand guidance on the accredited investor definitions, and harmonise registration relief for private fund managers. OSC compliance reviews increasingly emphasise valuation controls, conflicts management, and marketing practices, particularly in real estate-based LPs. The CSA has also signalled interest in enhancing investor protection measures for retail-adjacent exempt market activity, which may lead to further disclosure and filing expectations for LP funds operating continuous offerings.

Emerging OSC guidance also reflects closer scrutiny of unregistered fund managers relying on the international adviser exemption or other narrow carve-outs. As the industry grows, regulators appear more willing to re-characterise LPs as investment funds where redemption rights, pooled management, or retail-like features are present. Sponsors forming new LPs should anticipate steadily rising expectations around compliance infrastructure.

Conclusion and Next Steps

Setting up a limited partnership investment fund in Ontario involves more than drafting an LPA and forming a GP corporation. It requires a detailed understanding of how partnership law, securities regulation, and tax rules interact to shape the fund’s governance, economics, and compliance profile. Sophisticated sponsors should treat formation as the foundation of a long-term legal architecture—one that supports capital raising, protects investors, and withstands regulatory scrutiny as expectations evolve. The most successful fund platforms integrate formation, offering, management, and compliance into a cohesive system that can operate reliably for years.

Book a Consultation

If you are forming, restructuring, or operating a GP/LP private investment fund in Canada, contact us to schedule an initial consultation with Nick Wright.