In this guide you’ll discover the potential of an Ontario Limited Partnership—a dynamic business structure tailored for visionaries and investors alike.
The Ontario Limited Partnership is more than just a business structure; it’s a pathway to growth and collaboration. While the general partner steers the ship, limited partners can confidently invest, knowing their exposure is capped.
However, as with any collaboration, this structure comes with some disadvantages. In this guide we cover the pros and cons of setting up a limited partnership in Ontario, along with the registration process, legal considerations, and much more!
- An Ontario Limited Partnership is a business structure run by a general partner with unlimited liability and supported by another limited partner(s).
- The formation of an Ontario Limited Partnership requires a declaration to be filed with the government.
- An Ontario Limited Partnership offers flexibility in management and financial structure, but comes with some disadvantages such as unlimited liability for the general partner and potential disagreements between partners.
What is an Ontario Limited Partnership?
If you’re looking to start a business in Ontario, you may be wondering what an Ontario limited partnership is. Essentially, an Ontario limited partnership is a type of partnership that is governed by statute and any governing documents agreed to between the parties, such as a limited partnership agreement.
One of the key features of an Ontario limited partnership is that it must consist of at least one person who is a general partner and one person who is a limited partner. The general partner is responsible for managing the business and has unlimited liability for the partnership’s debts and obligations. The limited partner, on the other hand, typically has limited liability and is not involved in managing the business.
Compared to an Ontario general partnership, an Ontario limited partnership offers more flexibility in terms of management and liability. In a general partnership, all partners are responsible for managing the business and have unlimited liability for the partnership’s debts and obligations.
An Ontario limited partnership also differs from an Ontario limited liability partnership (LLP) in that an LLP offers limited liability to all partners, whereas an Ontario limited partnership only offers limited liability to the limited partners. In an LLP, all partners are also able to participate in management, whereas in an Ontario limited partnership, only the general partner is responsible for managing the business.
Overall, an Ontario limited partnership can be a good option for businesses that want to take advantage of the flexibility offered by a partnership structure while also limiting the liability of certain partners.
How to Register an Ontario Limited Partnership
Here’s what you need to know about the formation of an Ontario limited partnership:
To register your limited partnership in Ontario, you’ll need to file a declaration with the Ontario Ministry of Government and Consumer Services. This declaration must include the name of the limited partnership, the address of its registered office, and the names and addresses of all general partners and limited partners.
If your limited partnership is organized under the laws of a jurisdiction other than Ontario, you’ll also need to file an extra-provincial declaration. This declaration must include the name of the limited partnership, the address of its registered office, and the name and address of its attorney for service in Ontario.
In addition to the registration process, there are a few legal requirements that you’ll need to meet when forming an Ontario limited partnership. These include:
- Permitted Business: A limited partnership is generally not restricted in the type of business that it engages in so long as it is a for-profit endeavour.
- Limited Liability: Limited partners are not personally liable for the debts or obligations of the limited partnership beyond their initial investment.
- General Liability: General partners, on the other hand, are personally liable for the debts and obligations of the limited partnership.
- Name Requirements: The name of the limited partnership must end with the words “Limited Partnership” or “LP,” or the French equivalent “Société en Commandite.”
- Annual Filings: Limited partnerships must file annual declarations with the Ontario Ministry of Government and Consumer Services.
For more information on the formation of an Ontario limited partnership, please refer to the Limited Partnerships Act and the Ontario Ministry of Government and Consumer Services.
Pros & Cons of Ontario Limited Partnership
If you are considering forming a business in Ontario, you may be wondering whether a limited partnership is the right structure for you. Here are some pros and cons to help you make an informed decision.
- Limited liability for limited partners. One of the main advantages of a limited partnership is that the limited partners are not personally liable for the debts and obligations of the business beyond their investment. This means that if the business fails and owes money, the limited partners will not be personally responsible for paying those debts.
- Flexibility in management. Limited partnerships offer flexibility in management because the general partner has full control over the day-to-day operations of the business, while the limited partners have limited involvement. This can be advantageous if you want to have more control over the business while still attracting investors.
- Pass-through taxation. Limited partnerships are taxed as pass-through entities, which means that the profits and losses of the business are passed through to the partners and reported on their personal tax returns. This can result in lower tax rates compared to corporations, which are subject to double taxation.
- Unlimited liability for general partners. The general partner of a limited partnership is personally liable for the debts and obligations of the business. This means that if the business fails and owes money, the general partner will be personally responsible for paying those debts.
- Limited control for limited partners. Limited partners have limited involvement in the day-to-day operations of the business and may not have much control over major decisions. This can be a disadvantage if you want to have more input into the direction of the business.
- Limited lifespan. Limited partnerships have a limited lifespan and must be dissolved if a general partner dies or withdraws from the partnership. This can be a disadvantage if you are looking for a long-term business structure.
- Limited Partnerships: Overview | Practical Law – Thomson Reuters
- Advantages and Disadvantages of Ontario’s Main Business Structures | Durham Lawyer
- A Primer on Canadian Limited Partnerships | Wright Business Law
Roles and Responsibilities in an Ontario Limited Partnership
Limited partnerships in Ontario are composed of two types of partners: general partners and limited partners. Each partner has specific roles and responsibilities in the partnership.
General partners in an Ontario limited partnership have unlimited liability for the partnership’s debts and obligations. They also have the authority to manage the partnership’s business and make decisions on behalf of the partnership. General partners are responsible for the day-to-day operations of the partnership and are accountable for the partnership’s overall success.
Some of the key responsibilities of general partners include:
- Contributing capital to the partnership
- Managing the partnership’s business affairs
- Making decisions on behalf of the partnership
- Maintaining accurate financial records
- Ensuring compliance with all legal and regulatory requirements
- Acting in the best interests of the partnership and its partners
Limited partners in an Ontario limited partnership have limited liability for the partnership’s debts and obligations. They are not involved in the management of the partnership and are not responsible for its day-to-day operations. Limited partners are passive investors who contribute capital to the partnership and share in its profits.
Some of the key responsibilities of limited partners include:
- Contributing capital to the partnership
- Receiving a share of the partnership’s profits
- Participating in partnership meetings and voting on certain matters
- Reviewing and approving the partnership’s financial statements
- Not engaging in the management of the partnership
It is important for both general and limited partners to understand their roles and responsibilities in an Ontario limited partnership. By working together and fulfilling their respective duties, the partnership can operate smoothly and achieve its goals.
Financial Aspects of an Ontario Limited Partnership
When it comes to financial aspects, a Limited Partnership in Ontario has some unique characteristics that differentiate it from other business structures. This section will cover the taxation and profit and loss distribution aspects of an Ontario Limited Partnership.
One of the main advantages of a Limited Partnership in Ontario is that it is a pass-through entity for tax purposes. This means that the partnership itself does not pay income tax. Instead, the income or losses of the partnership are allocated to the partners, who report them on their personal income tax returns. This can be beneficial for the partners, as they can offset any losses against other income they may have.
It’s important to note that limited partners who do not participate in the management of the partnership may be subject to limited liability for the partnership’s debts and obligations, but they are not considered to be carrying on business in Canada for tax purposes. As a result, they are not subject to Canadian income tax on their share of the partnership’s income.
Profit and Loss Distribution
In an Ontario Limited Partnership, the distribution of profits and losses can be determined by the partnership agreement. This means that the partners can agree to allocate profits and losses in a way that is different from their ownership percentage in the partnership.
For example, the partnership agreement may specify that a general partner receives a larger share of the profits in exchange for taking on more management responsibilities. Alternatively, the partnership agreement may specify that a limited partner receives a smaller share of the profits in exchange for limited liability.
It’s important to note that the distribution of profits and losses must be reasonable and reflect the partners’ contributions to the partnership. If the distribution is not reasonable, the Canada Revenue Agency may re-allocate the profits and losses for tax purposes.
Dissolution of an Ontario Limited Partnership
If you are considering dissolving your Ontario limited partnership, there are several steps you need to take. First, you should review the terms of your partnership agreement to determine the process for dissolution. If there is no provision in the agreement, you will need to follow the procedures set out in the Limited Partnerships Act (LPA) of Ontario.
Under the LPA, a limited partnership can be dissolved in several ways. If the partnership has a fixed term, it will automatically dissolve at the end of that term. Alternatively, the partnership can be dissolved by the unanimous agreement of all partners. If the partnership has a general partner, they can also dissolve the partnership by giving written notice to all limited partners.
If you are a limited partner, you can also apply to the court for an order to dissolve the partnership if you can show that it is just and equitable to do so. This may be the case if there has been a breach of the partnership agreement or if the partnership is no longer profitable.
Once you have decided to dissolve your partnership, you will need to file a declaration of dissolution with the Ontario Business Registry. This form can be found on the Service Ontario website here.
In addition to the declaration of dissolution, you will also need to file any necessary tax returns and pay any outstanding taxes owed by the partnership. You should also notify any creditors and customers of the partnership that it will be dissolved.
Finally, you should distribute any remaining assets of the partnership to the partners according to the terms of the partnership agreement. If there is no provision for distribution, the assets will be distributed in accordance with the LPA.
Overall, dissolving a limited partnership in Ontario can be a complex process. It is important to follow the procedures set out in the LPA and to seek legal advice if necessary.
Legal Liabilities to Consider When Setting Up an Ontario Limited Partnership
As a limited partnership in Ontario, you have certain legal liabilities that you need to be aware of. Here are some key points to keep in mind:
- Unlimited Liability for General Partners: The general partners of a limited partnership are personally liable for all debts and obligations of the partnership. This means that their personal assets can be seized to pay off any outstanding debts or legal judgments against the partnership. It’s important to choose your general partners carefully and make sure they understand the risks involved.
- Limited Liability for Limited Partners: Unlike general partners, limited partners are not personally liable for the debts and obligations of the partnership. Their liability is limited to the amount of their investment in the partnership. This means that their personal assets are generally protected from any legal claims against the partnership.
- Exceptions to Limited Liability: There are some situations where limited partners can be held personally liable for the debts and obligations of the partnership. For example, if a limited partner takes an active role in managing the partnership or signs a personal guarantee for a partnership debt, they may lose their limited liability protection.
- Liability for Actions of Other Partners: Each partner in a limited partnership is considered an agent of the partnership. This means that they can bind the partnership to contracts and other legal obligations. If one partner makes a mistake or commits a wrongful act, the entire partnership can be held liable.
It’s important to consult with a lawyer or other legal professional if you have any questions or concerns about your legal liabilities as a limited partnership in Ontario. They can help you understand your rights and obligations, and ensure that you are in compliance with all relevant laws and regulations.
CanLII provides the full text of the Limited Partnerships Act, which governs limited partnerships in Ontario.