Limited Partnerships are unique investment vehicles that
provide investors with certain benefits attributable to
partnerships and corporate entities. Limited Partnerships have the
flow through attributes of partnerships (the ability to
"flow" net profits and net losses to the partners) while
affording limited partners limited liability similar to that of
shareholders (exposure is limited to limited partners contribution
to the Limited Partnership).
The following are three of the more common traps we see in our
1. Inclusion of a Surname or Distinctive Part of Corporate
We sometimes see a distinctive part of the corporate name of one
or more of the limited partners incorporated into the name of the
proposed limited partnership, contrary to the Act.1 The
inclusion of a surname or distinctive part of a limited
partner's corporate name in the name of the limited partnership
will cause that limited partner to lose its limited partner status.
This means that the limited partner will be liable as a general
partner to any creditor that does not have actual knowledge that
the limited partner is not a general partner.2 If
including a limited partner's name is vital to the
project's success, there are ways to reduce the risk of losing
limited partner status.
2. Taking Part in the Control of the Business
One of the underlying features of limited partnerships is that a
limited partner has limited liability. This limited liability
status is based on the limited partner being a passive investor. If
the limited partner is considered to take part in the control of
the business of the limited partnership, it will lose its limited
Most limited partnership agreements contain provisions
specifically prohibiting limited partners from taking part in the
management or control of the business of the limited partnership.
Despite this, the agreement may also contain conflicting
provisions. For example, there may be a provision that requires the
general partner to obtain the consent of the limited partners for
fundamental business decisions. Another example is a provision that
enables limited partners to provide input into annual business
plans. Limited partners must understand that increased input equals
increased exposure. Limited partners must balance these competing
Many First Nation communities value limited partnerships
primarily because of their positive tax attributes (preservation of
tax status for off reserve income). For others, tax attributes are
of less importance than having active input into business
3. Common Directors, Officers and Employees
Limited partners sometimes appoint one or more directors (or
senior officers or employees) of the limited partner to act as
directors (or senior officers or employees) of the general partner.
The strategy here is often to obtain a level of control over the
Limited partners should be extremely careful in using this kind
of strategy. If its determined that directors (or senior officers
or employees) are not acting in their capacity as directors (or
senior officers or employees) of the general partner, but are
acting on behalf of a limited partner, the limited partner could be
found to be indirectly taking part in the management or control of
the business of the limited partnership.
While limited partnerships provide certain industries with an
attractive vehicle for their projects, limited partners must take
care not to lose the beneficial attributes of limited partnerships
due to a lack of understanding of the Act.
1. Section 6(1) — The surname or a distinctive part
of the corporate name of a limited partner shall not appear in the
firm name of the limited partnership unless it is also the surname
or a distinctive part of the corporate name of one of the general
2. Section 6(2) — Where the surname or a
distinctive part of the corporate name of a limited partner appears
in the firm name contrary to subsection (1), the limited partner is
liable as a general partner to any creditor of the limited
partnership who has extended credit without actual knowledge that
the limited partner is not a general partner.
3. Section 13(1) — A limited partner is not liable
as a general partner unless, in addition to exercising rights and
powers as a limited partner, the limited partner takes part in the
control of the business.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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