Malcolm P. MacPherson
Barrister & Solicitor
Principal | Vancouver Business Law
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Vancouver, BC, V6C 1X8
In British Columbia, there are three forms of partnership that may be entered into, namely: general partnerships, limited partnerships, and limited liability partnerships. For today’s purposes, I will focus on the limited partnership, which is less commonly used than the corporation or general partnerships, but which has become increasingly popular in the structuring of business transactions for First Nation communities owing to certain unique characteristics which we will discuss. For the purposes of today’s discussion, references to the “Act” refer to Part 3 of the Partnership Act, R.S.B.C. 1996, the section which deals with limited partnership provisions and requirements. 1.02Legislative Beginnings
Limited partnerships first appeared in England in 1860 pursuant to the Bovill’s Act, 28 & 29 Vict., c.26. This said, the Limited Partnerhips Act, 1907 (7 Edw. 7, c.24) did not come into force in England until 1907. Notwithstanding their long history, limited partnerships remained relatively rare in common law jurisdictions until the early 1980s when they began to be used more frequently to take advantage of the favourable tax treatment available in certain transactions. Today, limited partnerships are most often employed for raising capital and for their tax benefits. The BC Partnership Act, Consolidated Acts of B.C. 1888, c. 92, was one of the earliest pieces of Canadian legislation to recognize the limited partnership. Every Canadian province and territory has now enacted legislation recognizing the limited partnership.
2Comparing Limited Partnerships and General Partnerships
2.01What is the Difference Between a Limited Partnership and a General Partnership? A limited partnership is a creature of statute. It is based upon many of the same concepts underlying the general partnership, but is different to the extent that the concept of limited liability is incorporated into the statutory language giving rise to its existence. In a general partnership, each partner is liable jointly with the other partners for all debts and obligations of the partnership incurred while he or she is a partner, whether in contract or in tort. By contrast, the legislative provisions respecting limited partnerships have largely mitigated exposure to this liability by the limited partners of a limited partnership. The following is a list of some of the significant characteristics of a general partnership, which characteristics are modified by the limited partnership: (i) all partners may take part in the management of the partnership and its business; (ii) each of the partners has the authority to bind the partnership or act as its agent; and (iii) the partners are jointly and severally liable for all partnership obligations, whether in contract or in tort. Limited partnerships differ from general partnerships primarily for the following reasons: (i) general partners whose liability for the debts and obligations of the firm is unlimited; and (ii) limited partners whose liability for such debts and obligations is limited to the amount of their investment. Limited partners are supposed to be passive investors, and must not participate in the management of the business, otherwise they jeopardize their limited liability status. 2.02Limited Liability
Before recommending the use of a limited partnership, one needs to give careful consideration to the roles of the respective partners therein. One of the key attractions of a limited partnership is that it provides...