A limited partnership (LP) is a partnership among persons carrying on business in common. It is composed of a general partner (or partners) and one or more limited partners. The limited partners benefit from limited liability.In an LP, management is conducted by the general partner(s), who is/are fully liable for all debts, liabilities, and obligations of the LP. The liability of the limited partners is restricted to the amount of money or interest they have invested in the LP.
Limited Partnerships are not separate legal entities and, as such, they present potential tax advantages compared to those offered by structures involving corporations. These advantages include the ability to “flow through” losses. For these reasons, Limited Partnerships are the chosen vehicle for raising capital for business ventures susceptible to initial losses.
An LP is not considered a separate taxable entity under the Income Tax Act (Canada). Therefore, it is not required to pay income taxes or file a corporate income tax return. Instead, all profits received by an LP are passed through the LP. Profits and losses are then allocated among the partners of the LP at the end of the fiscal year, in accordance with the terms of the LP agreement governing the LP’s business and affairs. Partners who are Canadian residents are required to include their part of the profit received through the LP in their personal/corporate tax returns. Partners who are not Canadian residents are not subject to withholding tax on the profits they receive from the LP.
Limited Partnerships have no audit requirements.
There are multiple advantages to establishing an LP to conduct business:
1. LPs are viewed as highly prestigious Canadian business entities;
2. LPs have no restrictions on the residency of partners, thus allowing non-residents to contribute to the partnership;
3. An LP can be composed of a single person who is the sole general and limited partner, or can be expanded to include the contributions of multiple partners;
4. There is no minimum authorized capital to an LP. Therefore, partners can make any contribution;
5. LPs can “flow through” profits and losses to their partners; and
6. In terms of taxation, there is no corporate income tax, no requirement to file corporate tax returns, and no withholding tax on profits received by partners situated outside of Canada.
For additional questions or if you are ready to form your own Limited Partnership in Ontario, please Contact Us