Manitoba limited partnerships have found favour in the recent decades as a useful business organization, given the limited liability protection, and general ability to contract in or out of duties as the parties might wish. There are some trips and traps, however, the most notable being the consequence of the failure to file a notice in the public record of a change to the partners or their capital contributions.
Section 4(1) of the Business Names Registration Act (the "BNRA") states:
4(1) Changes in membership
(a) a dissolution of a partnership occurs; or
(b) a change or alteration in the membership, or in the number of proprietors or partners, of a partnership occurs; or
(c) a person mentioned in clause 2(1)(a) or (c) ceases to carry on business;
(d) in the case of a limited partnership, there occurs an increase or a decrease in the capital contributed by any limited partner;
a declaration to that effect shall be registered in the proper office within 30 days of the dissolution, change or alteration, cessation or increase or decrease, as the case may be;
The Partnership Act states:
- Effect of change without registration
A change or alteration in a limited partnership such as is mentioned in clause 4(1)(b) or (d) and in subsection 4(2) of The Business Names Registration Act has no effect until the registration requirements of that section are complied with.
What happens if the filing is not made?
Two cases have considered this question in Manitoba.
155569 Canada Ltd. v. 57618 Manitoba Ltd., 2006 ABQB 919:
Investment in the limited partnership was marketed as a means to flow through tax losses to the investors. Stimson (the Defendant), purchased four units in the partnership as a limited partner. He paid for a portion of each unit by way of cash and the remainder by promissory note. The business of the limited partnership failed, and the limited partnership became liable for the repayment of certain loans. The Plaintiff is a company who had acquired interest in the loans and who claimed that the Defendant was liable for the entire deficiency (as the general partner), or at the very least, his unpaid contributions as a limited partner.
When Stimson acquired the partnership units, a declaration should have been filed to reflect the change in partners, per Section 4 of the BNRA. In this case, there was no declaration of change in membership of the limited partnership filed. The Plaintiff contended that the failure to register the change means that Stimson could not claim limited liability and was to be considered a general partner. Stimson claimed that since no new certificate was filed after he acquired his units, the transfer was not effective and that he was not a partner at all.
The Court agreed with Stimson and concluded that while he may have been an assignee of an interest in the partnership, he was not a general or limited partner. The Court acknowledged the wording of the Private Placement Memorandum which stated:
"The assignee will be entered on the register of Partners as the holder of a Unit as at the day the assignment is entered on such register but will not become a Partner until the filing and recording of an amendment to the certificate in respect of the Partnership under the Partnership Act. The General Partner is required to prepare and file an amendment to such certificates."
177061 Canada Ltd., Re, 1994 CarswellOnt 296:
The alleged new general partner of a partnership filed a petition against the previous general partner for a receiving order alleging that it had failed to meet its obligations as general partner.
The partnership was registered in Manitoba. The partnership was also extra-provincially registered in Ontario, where the Limited Partnership Act indicates that the laws of the jurisdiction under which an extra-provincial limited partnership is organized govern its organization and internal affairs. A declaration indicating a change in general partner had been filed in Ontario, but there was no notice of change in general partner filed in Manitoba. The Court held that the "new" partner could not be recognized as general partner by the Manitoba court and therefore had no authority to file the petition.
In conclusion, while the use of a Manitoba limited partnership might be of great benefit to the parties, the misuse of this business organization is fraught with liability.
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.