The Canadian Limited Partnership or “LP” is a business entity that has gained popularity among those engaged in international transactions and holdings including foreign investors and those with assets outside of Canada.
Each Province in Canada has its own limited partnership legislation. For example, in Ontario, the Limited Partnerships Act, RSO 1990, c L.16 governs.
A limited partnership is not a separate legal entity but can open a bank account, conduct business and contract with customers and business partners.
For Canadian tax purposes, the limited partnership is treated on a flow-through basis and it is not required to file an annual tax return with the Canada Revenue Agency.
All profit earned by the limited partnership is distributed among the partners and partners who are non-residents of Canada can have no tax liability in Canada. Furthermore, there is generally no withholding tax on profit received by partners outside of Canada.
There is no residency requirement to set up a limited partnership. It can be created by a single non-resident acting as both general and limited partner.
The general partners are responsible for the management of the limited partnership and are personally liable for all of its liabilities. The limited partners do not participate in the management of the business and their liability is limited to the assets contributed by them to the limited partnership. A corporation can be used as a general partner in order to shield against personal liability.
There are no contribution requirements to set up a limited partnership or to become a general or limited partner. Often limited partnership agreements are entered into using a nominal contribution of one dollar.
Setting up a Canadian limited partnership in Ontario involves:
- Obtaining professional advice on the business and tax law implications of your intended business structure to ensure that a Canadian limited partnership is right for you;
- Conducing a name search confirming the uniqueness of the proposed limited partnership name;
- Completing and filing the government application form;
- Appointing a power of attorney in Ontario to receive official correspondence;
- Drafting and entering into a limited partnership agreement among the partners; and,
- Preparing the general and limited partners registers.
Because the business and tax implications of international business structures can be complex, it is advisable to seek legal and tax advice prior choosing to use a Canadian limited partnership.
Wright Business Law can help with your Canadian limited partnership. Book a telephone consultation with Nick Wright today to discuss your business plans.
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