Limited Partnerships: the Manitoba Advantage

By Philip M. Aubry
July 7, 2015

A limited partnership is a form of statutory partnership designed to fulfill the needs of investors who want to share in the profits of the partnership but limit their liability.  In Ontario, limited partnerships are governed by the Limited Partnerships Act (“OLPA”).  In Canada, each province (other than Manitoba and Quebec) has similar legislation governing limited partnerships.  Unlike general partnerships, a declaration must be filed with the registrar appointed by the Business Names Act in order to form a limited partnership.

Every limited partnership must consist of at least one general partner with unlimited liability and at least one limited partner with limited liability.  As a result, the general partner has all of the rights and powers and has unlimited personal liability.  The limited partner, on the other hand, has the right to share in the profits and their liability is limited to the extent of their contribution. In Ontario, the limited partner may advise the general partner as to its management but the limited partner may not participate in the management or control of the partnership business without losing their limited liability protection. Distinguishing the two can be difficult therefore the limited partner in Ontario must be careful to not take “control” or participate in the management of the business.

In the event the limited partners wish to participate in the management or take control without losing their limited liability protection, the Manitoba regime can be advantageous.  The Manitoba limited partnership is considered the most lenient in Canada with respect to the liability of the limited partners.  The Partnership Act of Manitoba (“MPA”) provides that when a limited partner participates in the management or control of the limited partnership, it is liable as a general partner to third parties dealing with the partnership only if such third party is not aware that they are a limited partner.  Furthermore, such liability to the third party only extends to liabilities incurred by the partnership from the time of first dealing with the third party to when such party learns that they are dealing with a limited partner.  The MPA provides a key advantage to limited partners when providing notice to third parties that they are dealing with a limited partner.   As a result, many limited partnerships used in structuring plans choose Manitoba constituted limited partnerships even if they have no connection and are not conducting business in Manitoba.

It is important to review the partnership acts in each province the limited partnership is formed in and conducts business in. The OLPA provides that the laws of the MPA will govern a Manitoba limited partnership doing business as an extra-provincial limited partnership in Ontario.  However, this is not the case in every province; for example, the Partnership Act (British Columbia and Alberta) provides that such Manitoba regime carrying on business in Alberta or British Columbia is subject to the same duties, restrictions, penalties and liabilities as imposed on a limited partnership formed in those provinces.  Therefore, the Manitoba regime would not be beneficial or apply with respect to limited partners if carrying on business in Alberta or British Columbia.

Furthermore, although there are advantages to the Manitoba limited partnership regime, the following must be taken into consideration when debating between the Manitoba or Ontario regime:

  1. The MPA requires disclosure to the public with respect to the identification of the limited partners and their capital contributions (Ontario does not require this);
  2. the Manitoba regime is more expensive to form and maintain than the Ontario regime; and
  3. the dissolution of a Manitoba limited partnership is more onerous than the dissolution of an Ontario limited partnership.

For further advice or information on structuring your business, please contact the author or any member of the Business Law Group at Perley-Robertson, Hill & McDougall LLP/s.r.l.

The foregoing provides only a general summary and does not constitute legal advice.  Legal advice should be obtained prior to structuring your business.


Philip M. Aubry is a lawyer in our Business Law Group.  Philip can be reached at 613.566.2746 or [email protected].

 

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