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What is a Limited Liability Partnership in Canada?
An alternate business that will give you the advantage of the limited Liability of the company and the partnership elasticity is called a Limited Liability Partnership in Canada (LLP). Regardless of the change of partners, LLP continues its existence. LLP can get into a contract and also hold the property in the company's name. The agreement between the partners will govern the mutual rights and tasks of the partners.
Limited Liability Partnership in Canada contains both fundamentals of a corporate and partnership firm structure, which you can also call a hybrid between the company and partnership. This business came into existence with Limited Liability Partnership Act 2008. In this business, there is a separate Legal entity. The Liability of the business partner is only limited to the agreed contribution of the partners in a Limited liability partnership, but it will be liable to the full extent of its assets.
Advantages of a Limited Liability Partnership in Canada
Limited Liability Partnership in Canada has many advantages, some of which are mentioned below
Liquefied Governing Structure
In a Limited Liability Partnership in Canada, all the partners have complete freedom on how the business should be governed and structured because of the partnership and limited liability partnership structure. In a Limited Liability Partnership, partners can come up with any way they would like to manage the organization because of its fluid structure. They do not have to report their activities to anyone. This fluid structure also allows the partners to easily move the assets and funds out of the business.
Simple Tax Structure
A Limited Liability Partnership in Canada is a pass-through tax entity. A special business structure is a pass-through entity used to reduce double taxation's effect. At the partnership level, there is no tax paid; instead, whoever pays the income tax at the individual partners' level will have the partnership income allocated to them among partners. Although this structure avoids double taxation, it will become difficult for the high-earning partners if they want to shield their income from high tax rates.
Amazing Tax tool
It is expected to incur losses in Canada's first year of the Limited Liability Partnership, but it can be a great tax planning tool. When you continue to be employed and earn a T4 salary income, you will be able to write off your partnership's startup costs and pay low taxes on income earned through your regular employment.
Features of the Limited Liability Partnership in Canada
The Features of the Limited Liability Partnership in Canada are as follows
Body Corporate
A Limited Liability Partnership in Canada is registered and defined as a body corporate in Sec 3 of the Limited Liability Partnership Act 2008.
Distinct Legal Entity
A Limited Liability Partnership, upon its incorporation, is a separate legal entity. The partners identify differently from that of their own. A limited liability partnership can be sued and sued in its name. Just like the corporation, it is a separate legal body; also, it will be entirely responsible for properties. In the limited Liability Partnership contribution, the partner's responsibility is limited.
Partnership Deed
The Limited Liability Partnership in Canada has the features of both the partnership and the limited company. To perform a business activity to share profits, an agreement is formed between two people.
Mutual Agency
The independent action of one partner will not affect the Liability of any other partner of the company, which is a unique feature of the Limited Liability Partnership. The agents of a Limited Liability Partnership are the partners, and their actions are not binding on each other like their relationship as partners to the Firm.
Perpetual Succession
The principles of perpetual existence are followed by the Limited Liability Partnership, which implies that the Limited Liability Partnership will continue even after the cessation or if any partner dies. After the cessation of the partners, the contract and property held continue to remain the same way.
An artificial Legal person
A Limited Liability has the status of an artificial Legal person, and a Limited Liability Partnership enjoys rights equivalent to those of an individual following the law's provision. The Limited Liability Partnership is an immortal, invisible, intangible entity, and yes, it does exist.
Partner Numbers
Limited Liability Partnership has to have a minimum of two partners, with one partner being at least the designated partner of resident India.
Management
Only the designated partners will be responsible for their legal and regulatory compliance, and the limited liability partnership partners can manage their business.
What Documents are required for registration of a Limited Liability Partnership?
The documents required for registration of a Limited Liability Partnership are mentioned below
You will need ID proof of Proposed Directors and members
- Pan Card
- Adhar Card
- Passport or Driving license
Proposed members and directors address proof
- Telephone bill
- Mobile Bill
- Bank statement
- Electricity bill
Principle place of Business Address Proof
- Utility bills like telephone and electricity bills,
- Rent agreement
- Proof of ownership
The registration process for a Limited Liability Partnership in Canada
Step 1- Application for Name
The desired name for Limited Liability Partnership in Canada should be applied through the RUN Form on the MCA portal. The MCA provides the two proposed name options, which are subject to scrutiny and approval. If, in any case, the two given names have not been approved, then you will again get a chance to resubmit two other names.
Step 2- Digital Signature Certificates (DSC)
The Digital Signature Certificates have to be applied following the applicable provisions for the proposed partners and designated partners. This step must simultaneously be done with the name application to save time. In the Limited Liability Partnership, every incorporation application is an online procedure and will be signed by the authorized person electronically.
Step 3- Deed of Limited Liability Partnership
For the name application, after filing and approval, the partnership deed should be accurately drafted on the stamp paper of the prescribed document about the proposed Limited Liability Deed. This deed must be signed by each partner and attested by a notary public. Limited Liability partnership deed will include the provision related to the points mentioned below:
- Partners Detail - Name, Address, and occupation of partners
- Firm Details – firm name, Firm's address, a business activity which has to be undertaken by the Firm.
- Capital- Details of Capital used
- Commencement date of Business
- Profit-sharing- In partnership deed, ratios should be described clearly in terms of what ratios profit and shares will be distributed.
- Interest Clause – This deed has to make provisions for loans given on interest; the partners should also make the drawings and capital contributed by the Firm of the company.
- Remuneration Clause – This deed should also define salaries, remunerations, commissions, or any other forms of payments.
- Partners Rights & Duties – The provision with a clear definition of the rights and duties of each partner, whether active or inactive, should be in a well-drafted partnership deed.
- Partnership changes - In case of business or partnership structure changes, they will be provisioned in the deed. The deed will also have to define the process commenced in case of retirement, cessation, death, or induction of any partner in the Firm.
- Other clauses- As long as it is within the ambit of the law, the Partners can mutually agree on any aspect of the limited liability partnership deed, so the deed can also contain some other provision.
Step 4- Incorporation Filing
The MCA will issue a name approval letter once the name that has been proposed to the Limited Liability Partnership is approved. Before you receive the approval letter, you need to prepare the forms for the incorporation of the proposed Limited Liability partnership in Canada and have to file per the provisions of the Limited Liability Partnership Agreement. The form has to be accurately prepared and filed with applicable fees.
Step 5- Filing LLP Agreement
After application approval for incorporation of the Limited Liability Partnership in Canada, the copy of the signed and notarized copy of the Limited Liability Partnership agreement shall be filed with the respective ROC in the agreed form online. The incorporation process is incorporated and will conclude with the receipt of sanction of the filed Limited Liability Partnership Agreement.
Requirements for opening a Limited Liability Partnership in Canada
The conditions for opening a Limited Liability Partnership in Canada are not that stern, and whoever is interested in setting up a business in Canada in this business form must consider the requirements mentioned below-
The limited liability partnership should have at least two members
for natural persons or companies.
- There should be at least one general partner who will be limited liable for the partnership's debts and obligations.
- The full limited Liability for the partnership debts and obligations will benefit the other members.
- A thousand Canadian Dollars is the minimum authorized share capital for opening a limited liability partnership.
Taxation Policies of Limited Liability Partnerships in Canada
The taxation of this structure is one of the most important advantages of opening a limited liability partnership in Canada, especially for foreign investors because of the tax structure of the Limited Liability Partnership, as they are exempted from federal and provincial taxes. That is the reason why the Limited Liability partnership is the most employed structure by foreign entrepreneurs and companies interested in having an existence in Canada.
In the Limited Liability Partnership, it is necessary to maintain the annual accounting books and periodically file the financial statements like any other Canadian company.
What services Enterslice can provide?
- We at Enterslice will provide you with seamless Limited Liability registration in Canada, making sure that clients adhere to all the legal requirements and regulations.
- Our team at Enterslice will provide you with expertise in the formation of Limited Liability Partnerships in Canada, guiding clients through the intricacies of Canadian business laws and regulations.
- Enterslice provides you with solutions based on our clients' specific needs and objectives, ensuring a personalized approach to a limited liability partnership in Canada registration.
- We at Enterslice will assist clients in ensuring compliance with all legal formalities and documents required for Limited Liability Partnership registration in Canada, which will minimize your risk of legal complications.
