Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership and limited partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership and limited partnership agreements.  I should know – I’m one of them and you can contact me directly.

This is the 6th blog I’ve written about limited partnerships.  In this blog, I’ll be talking more about Ontario limited partners, who they are, what their rights are, and how they can transfer their interest.  Be sure to read up on the first 5 sets of blogs about limited partnerships, which included gold nuggets on limited partnerships generally, limited partnerships as separate legal entities, securities and tax implications, how limited partners could lose their limited liability status, etc.

Who is a Limited Partner?
First, an Ontario limited partner is one of two types of partners required to form a “limited partnership” under the Ontario Limited Partnerships Act.  The other type of partner is called a general partner.  Unlike a general partner, a limited partner’s liability is limited up to their contribution (a general partner’s liability is unlimited).

What is a Limited Partnership?
A limited partnership is a statutory vehicle.  Granted, it is a partnership (i.e. two or more people carrying on business together with a view to a profit).  But it is governed by the Act and any limited partnership agreement (just as a general partnership would be governed by the Ontario Partnerships Act and any partnership agreement).  And to be a limited partner in a limited partnership, you must deliberately file a Declaration and pay a fee (e.g. $210 in Ontario) to create a limited partnership.  So you can’t accidentally have a limited partnership.  And you can’t assume you are a limited partner with limited liability without first achieving that status under the Act.

Rights
So with that now said and done, we move on to the rights of limited partners.  Essentially, they have a number of rights under the Ontario Limited Partnerships Act, including:

• the right to inspect and copy the books of the limited partnership (s. 10(a)):
• the right to be given a complete and formal account of the limited partnership’s affairs (s. 10(b));
• the right to obtain dissolution of the limited partnership by court order (s. 10(c));
• the right to share in the profits and other compensation of the partnership (s. 11(1)(a)), subject to other provisions of the Act;
• the right to have their initial contribution returned (s. 11(1)(b)), subject to other provisions of the Act;
• the right to examine the “state and progress” of the limited partnership business and advise as to its management (s.12(2)(a));
• the right to act as a contractor for or an agent or employee of the limited partnership or of a general partner (s.12(2)(b));
• the right to act as a surety for the limited partnership (s.12(2)(c)).

Contribution
The biggest distinguishing factor in being a limited partner is that generally your liability exposure is limited to your contribution.  What is their contribution, then?  Well, it’s not services.  It must be money, property or both: s. 7(1).  Just like with the “Stated Capital” of a corporation, the limited partner’s contribution must be recorded in the limited partnership’s books.  For those who don’t know, the “Stated Capital” is a simple document that shows, with respect to a corporation, who its shareholders are, how much they’ve given the corporation for their shares, the number and class of shares they own, etc.  You get the point.  But what’s important to note about the limited partner’s contribution to the limited partnership is that ANY PERSON has the right, under the Act, to inspect the records of the limited partnership at the registered head office (or the limited partnership’s attorney’s office) during normal business hours AND may make copies of and take extracts!  Failure to comply could constitute an offence under the act and be punishable on conviction to a fine of up to $2,000 (for an individual) or $20,000 (for a corporation).

Transferring their Interest
The Act says (at s. 18(1)) that a limited partner’s interest is assignable.  Well, that’s a good thing.  But there’s an important caveat: is the limited partner a “substitute partner”?  If no, then the assignee (the person acquiring the limited partner’s interest) will ONLY be entitled to receive the assignor’s (the limited partner) contribution to the limited partnership and share of the profits or other compensation.    OUCH!  What about rights to inspect the limited partnership’s records and books or be given information or account about matters affecting the limited partnership?  Nope.  Sorry.  No rights there!  So says s. 18(3) of the Act.

So what is a “substitute partner” and what kinds of rights and duties, etc. do they enjoy after receiving or being assigned the interest of the limited partner?  Well, a “substitute partner” is an assignee who either receives permission from all the other partners in writing to be a “substitute partner” or who is designated by the assignor (i.e. the limited partner) under the authority of the limited partnership agreement.

OK, so what happens when an assignee becomes a “substitute partner”?  Well, essentially they have all the rights and powers and are subject to the same restrictions, duties, obligations, etc. as the limited partner who assigned their interest.  There are a few points worth mentioning here.  First, the “substitute partner” will not inherit or be subject to the liabilities of the limited partner which weren’t known at the time the limited partner became a limited partner and which could not be ascertained from the partnership agreement, the declaration or the record of limited partners.  Second, the assignor (limited partner) will not, even in assigning their interest, be relieved of their obligation to pay for any difference between their actual and recorded capital contribution (s. 16 of the Act and s. 18(7)).  Furthermore, the assignor (limited partner) will not, in assigning their interest, be relieved of liability arising from false or misleading statements in the partnership record that they were aware of but did not take steps to correct (s. 30 and s. 18(7)).

Look, I know this stuff gets confusing – particularly if you’re not a lawyer – so if you want to talk with a lawyer about limited partnerships, being a limited or general partner, setting up or dissolving a limited partnership, etc., then make a post on Dynamic Lawyers or contact me directly.

written by admin \\ tags: limited partnership, limited partnership agreements, limited partnerships, partner status, professional assistance, securities laws, separate legal entity, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to getting, varying, or terminating child support in Ontario, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Brampton, Hamilton, and other Ontario family law lawyers registered on Dynamic Lawyers who can offer information, advice, and assistance with respect to helping you get, vary, or terminate child support.

As a follow up to my recent blog about child support obligations in Ontario and limitations on that obligation, in this blog, I’ll be discussing what the relevant time period is for determining a parent’s ” income” for the purpose of paying child support (note: this blog won’t deal with the timeline for determining income in respect of retroactive payments).

Remember: a parent’s child support obligations depends on whether they meet certain legal tests.  If they are obliged under law to pay, the next question becomes: how much do they need to pay?  Well, that depends on their income.  But it’s not just any “income” (e.g. income for tax purposes, etc.).  It’s actually a complicated legal analysis of what constitutes their income.  I’ll try to shed some light in the next few posts about relevant issues when trying to determine a payor’s income.

One such issue that comes to mind is:  what is the relevant time period for determining a parent’s “income” for child support purposes?

In a nutshell, the most current information must be used.

The Child Support Guidelines prescribe a method to determine child support. The starting point is the parent’s total income, as shown on his or her income tax return (latest T1 General form issued by the Canada Revenue Agency), and as adjusted in accordance with Schedule III of the Guidelines [s. 16]. The definitions section of the Guidelines provides that, where any amount is to be determined on the basis of specific information, the most current information must be used [s. 2(3)].

In Ward v. Ward, 44 R.F.L. (4th) 340, the Ontario Divisional Court stated the following with respect to the Federal Child Support Guidelines (which mirror the Ontario Child Support Guidelines):

23 In order to identify the table amount of child support the income of the petitioner must be ascertained. In the usual case the income of the payor-parent is identified by using the most current information available (pursuant to s. 2(3) of the Guidelines) and by referring to the “Total income” found in his or her T1 General form issued by Revenue Canada (pursuant to s. 16 of the Guidelines).

This view was reiterated in Muir v. Muir, 44 R.F.L. (4th) 340, where the Ontario Court of Justice observed:

23 I also note subsection 2(3) of the Guidelines which reads as follows:

Most current information – Where for the purposes of these Guidelines, any amount is determined on the basis of specified information, the most current information must be used.

Worth mentioning, however, is that courts have recognized that the amount of income disclosed on the tax return need not necessarily be used: prior to the end of a taxation year and in certain circumstances, a parent can apply to vary child support based on an anticipated reduction in income.

Finally, the court may consider the parent’s last 3 years of income and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount during those years [s. 17(1)]. The objective is to determine the fairest indicator of the individual’s income. Once the parent’s annual income is ascertained, the Ontario Child Support Tables set out the amount of monthly child support payable.  For more on using the tables or a child support calculator to determine child support obligations, please refer to my other blogs.

written by admin \\ tags: canada revenue agency, child support guidelines, child support in ontario, child support obligations, child support purposes, family law lawyers, income tax return, legal advice, ontario family law, relevant time period, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership and limited partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership and limited partnership agreements.  I should know – I’m one of them and you can contact me directly.

Following up on my recent blogs about Ontario limited partnerships, what they’re all about, how a limited partner can lose their limited partner status, and how a limited partnership is not a separate legal person, I thought I would blog about an important yet often overlooked aspect of using limited partnerships to raise money for an investment: complying with securities laws.

Ontario limited partnerships are generally used for tax planning purposes.  A group of persons want to start a business.  They realize that the business will generate losses in the first few years (which is normal when you’re first starting out).  They want to offset their income with those losses.  If they use a corporation, the losses will get trapped in the corporation.  The corporation can carry them forward (to a certain extent), but cannot transfer those losses through dividends to the shareholders.  Since a limited partnership is simply a flow-through structure and not a separate legal entity, its losses can be attributed to its partners.  So, to recap: Ontario limited partnerships are generally used for tax purposes (since they offer no advantages to mitigate liability vis-a-vis a corporation).

Now, we move on to securities laws implications.

When limited partnerships are being established, it’s not just a matter of complying with the provincial partnerships acts, the Income Tax Act, and any partnership agreement that may exist between the partners.  If the limited partnership is going to be offering “securities” (as defined under the Ontario Securities Act) through the offering of limited partnership interests that fall under that definition, then the limited partnership will need to comply with dealer registration, prospectus requirements, and other onerous obligations before it is allowed to offer those securities.  The limited partnership can, however, avoid complying with those securities law obligations if it qualifies for an exemption.  You should definitely consult with a business lawyer familiar with these exemptions BEFORE offering limited partnership interests. Also keep in mind that you’ll need to comply in ALL of the jurisdictions you’re proposing to offer securities.  So you’ll need to consult with lawyers about compliance in those jurisdictions (and the rules are not necessarily the same wherever you go!).  All too often, parties don’t think about complying with securities laws until it’s too late.  Then it’s only down hill from there: Ontario Securities Act proceedings which could result in worse things (e.g. civil litigation, bankruptcy, divorce, etc.).  OUCH!!!

written by admin \\ tags: business lawyers, educational purposes, first few years, legal advice, limited partnership agreements, limited partnerships, ontario business, partner status, professional assistance, securities laws, separate legal entity, shareholders, tax planning, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership and limited partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership and limited partnership agreements.  I should know – I’m one of them and you can contact me directly.

So following up on my previous blogs about limited partnerships (e.g. what they’re all about and how a limited partner can lose their limited partner status), I thought I would dedicate this blog to address the following question: is a limited partnership a separate legal entity from its partners?

The answer is “no”.

A limited partnership is a type of partnership governed by the Ontario Limited Partnerships Act, the Ontario Partnerships Act, and the limited partnership agreement that exists between the general and limited partners (if any).  There is nothing that confers on a limited partner the status of being a separate legal person.

With these things being said, there are a number of legal situations where a limited partnership appears to be a separate legal entity.  For example, a limited partnership:

• can sue and be sued;
• can file its own income taxes;
• can be petitioned into bankruptcy; and
• has its own property (for the purposes of dissolution and redistribution);

But don’t get confused: these instances are mere conveniences granted by statutes to a limited partnership to recognize it temporarily for various purposes (e.g. civil litigation, tax, bankruptcy, etc.).  Always remember that a limited partnership is simply a special kind of partnership that is not a separate entity from its partners.  Think of it like a marriage between persons…

written by admin \\ tags: business lawyers, Civil Litigation, legal person, legal situations, limited partners, limited partnership agreement, limited partnership agreements, limited partnerships, ontario business, ontario limited, partner status, partnerships act, professional assistance, separate legal entity, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership agreements.  I should know – I’m one of them and you can contact me directly.

This is a follow up to my recent blog about partnership agreements (Part 1), which dealt with the following issues in partnership agreements: date, parties, and partnership name.  In this blog, I’ll be discussing the Place of the Partnership and a description of the Business of the Partnership. Keep in mind that these are different from limited partnerships and limited liability partnerships.  Please also further keep in mind that general partnerships are governed by their agreements and provincial statutes.

Place of Business
Identifying the place of business is important for record-keeping purposes.  Partners have rights to inspect partnership documents and records (e.g. financial records, etc.).  As such, there should be a clear indication of where the primary place of business or head office is located for the purpose of allowing partners to inspect and make copies of these records.

Business of the Partnership
Here, you’ll want to identify the business of the partnership (e.g. you can specify that the partnership will carry on the business of X for X in the geographic region of X).  It’s important for a couple of reasons.

First of all, non-compete clauses and other restrictive covenants generally use the “Business of the Partnership” as defined in the partnership agreement as the basis to limit partners’ ability to compete during and after the term of the partnership agreement.  Just make sure a lawyer review this so that it is properly defined (i.e. broadly enough or narrowly enough, depending on what the partners’ particular interests are).

Second, the business of the partnership – properly defined – should help limit the scope of a partner’s authority to bind  other partners. This is important because partners may sometimes act outside the scope of their authority (e.g. beyond the defined “business of the partnership”); if it can be said that the partner acted within the scope of the “business of the partnership” (based on a factual matrix), then one partner may inadvertently bind the other partners and make them liable for that partner’s acts and omissions.  That’s why it’s good to have a clearly written and agreed-upon  “business of the partnership”and to have it reviewed to ensure compliance!

Why is it so important?  Take the following example (the leading case in Ontario).  In McDonic v. Hetherington, 96 O.A.C. 289, 29 B.L.R. (2d) 1, 142 D.L.R. (4th) 648 (Ont. C.A.), two clients (sisters) sued a lawyer and his law firm partners in respect of investments which the lawyer had been making on their behalf.  The law firm had a substantial mortgage business and regularly invested funds for its clients.  The lawyer (without the other partners knowing) made investments on behalf of the sisters without telling them about the nature of the investments he was making, getting their approval, or protecting their interests.  But that lawyer used the law firm’s facilities, services, and employees to transact that business.  The sisters sued the lawyer and his law firm partners for negligence and breach of fiduciary duty (among other things).  The Ontario Court of Appeal found the partners liable because that one lawyer’s activities were WITHIN the scope of the law firm’s ordinary business and were performed within the implied or apparent authority of the partners. The Court of Appeal found there was nothing to suggest to the clients that the lawyer was acting in any capacity other than as a partner of the law firm.  The fact that the lawyer acted negligently or dishonestly or that partners weren’t aware of any of his business dealings didn’t matter! As such, the other partners were jointly and severally liable (judgment was: $10,198 for one sister and $231,557 for the other sister plus legal costs!) under the Ontario Partnership Act for the acts of that one partner. This goes to show that partnerships should be mindful of the business carried on by the partners!

Finally, the “business of the partnership” should likely be one of those clauses that requires the unanimous consent of all the partners to change it because of its importance.

written by admin \\ tags: business lawyers, business of the partnership, Canada Income Tax, canada income tax act, canadian partnership, cra, general partnerships, income tax act, legal advice, legal names, limited liability partnerships, limited partnerships, mississauga, nuts and bolts, ontario business, partnership agreement, partnership agreements, partnership business, professional assistance, provincial statutes, tax purposes

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only.  If you need legal advice with respect to drafting, reviewing, interpreting or resolving disputes concerning partnership agreements, you should seek professional assistance (e.g. make a post on Dynamic Lawyers).  We have Toronto, Ottawa, Hamilton, Mississauga, Brampton, and other Ontario business lawyers registered on the website who can answer your questions or help you with your partnership agreements.  I should know – I’m one of them and you can contact me directly.

As a follow up to a previous blog I wrote about basic partnership agreement templates, I thought it would be worthwhile to get into greater detail concerning the nuts and bolts of partnership agreements.  This is the first of a series of blogs about this topic.  In this blog, I’ll be discussing the Date, Parties, and Partnership Name considerations in a general partnership agreement for Ontario. Keep in mind that these are different from limited partnerships and limited liability partnerships.  Please also further keep in mind that general partnerships are governed by their agreements and provincial statutes.

Date
What is the date of the agreement?  This is important because, at the end of the agreement, there will typically be a provision saying that the agreement comes into force on the date first written above.

Parties
Here you want to be very clear as to who the parties are that are entering into the general partnership. Use full legal names and address.

Keep in mind that residency of the partners is important for tax purposes: if there is one partner who is considered to be a foreign resident under the Canada Income Tax Act, then the partnership cannot be considered a “Canadian partnership” for tax purposes: s. 102(1).  This is an interesting provision because it allows the CRA to essentially look through the partnership vehicle (keep in mind that it’s a flow through entity and not a separate legal person) to see who the partners are.

If one of the partners is a non-resident of Canada, then the partnership is not a “Canadian partnership”.  This has a number of significant impacts.  First, this non-resident status effectively denies a rollover (i.e. tax deferral) on partner transfers of certain property into the partnership (s. 97(2)); these rollovers are available only to “Canadian partnerships” in the form of an election. Second, non-resident partnerships are denied a rollover (i.e. tax deferral) on partnership property that is distributed to the partners on the dissolution of the partnership (s. 98(3)); again, these rollovers are available only to “Canadian partnerships”. Third, pursuant to ss. 212(1) and 212(13.1)(a), if a non-resident partnership pays an amount that is deductible to it under the Act to a non-resident partner, then the non-resident partner will be required to withhold 25% taxes on designated income (e.g. management fees, interest, rents, royalties, dividends, etc.) which it receives from the non-resident partnership! Ouch! Finally, non-resident partners may be liable to pay Canadian withholding taxes (e.g. 25%) when they dispose of certain taxable Canadian property (e.g. shares of Canadian companies, Canadian real estate, certain partnership and trust interests, etc.): s. 116(5). Therefore it’s important for tax purposes to know who the partners are and whether they are residents of Canada.

If you’re dealing with a corporate partner, be sure to get a lawyer to do the diligence on whether the corporate partner properly exists and has all the necessary powers and approvals to enter into the partnership.

A common question comes up: can a general partnership be a partner of a general partnership?  The answer is “NO”.  General partnerships are governed by the Ontario Partnerships Act and the written partnership agreement between the parties (which can override certain default rules of the Act).  That Act states in s. 3 that a partnership is entered into between “persons”.  Unfortunately, “persons” is not defined in that Act.  So we turn to s. 29(1) of the Ontario Interpretation Act, which defines a person to include “a corporation and the heirs, executors, administrators or other legal representatives of a person to whom the context can apply according to law”.  Since there’s no reference to a “partnership” as being a “person” capable of entering into a “partnership” under s. 3 of the Partnership Act, a general partnership cannot be a partner of a general partnership!  Phew…I hope you follow that logic!

Partnership Name
You need to specify here what the partnership name will be.  It is this name that the partnership must carry on business using.  You might want to do name searches to make sure that the partnership name is not being used or not used in your industry.  Furthermore, you may want to consider trademarking the name to better protect it.  The Ontario Business Names Act creates two requirements for partnership names under ss. 2(3) and 2(3.1):

2(3) No persons associated in partnership shall carry on business or identify themselves to the public unless the firm name of the partnership is registered by all of the partners.

2(3.1) No persons associated in partnership shall carry on business or identify themselves to the public under a name other than a firm name registered under subsection (3) unless the name is registered by all of the partners.

Let’s be clear here: the consequences of failing to register a partnership name does not mean that a partnership never existed.  A partnership’s existence will depend on the test set forth in section 3 of the Ontario Partnership Act and the court’s interpretation of that section.   This is to be distinguished from a limited partnership, which can ONLY exist upon the registration of the limited partnership name!

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