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Foreign investors who wish to set up their business in Canada have a number of business vehicles to choose from. Among them private corporation is one of the most sought after options. However, there are a number of other business vehicles which can be chosen by the investors depending on their needs. One of the interesting business vehicles adopted by foreign investors is Limited Partnership in Canada because of the tax minimization purposes. This article gives a detailed description of the limited partnerships in Canada and the procedure for setting up such limited partnerships in Canada.
Table of Contents
A limited partnership in Canada is a form of a general partnership, which is one of the three forms of business structures in Canada. A limited partnership is operated by a single general partner having unlimited liability. Such a general partner is supported by other “limited partners”. The general partner enjoys the major chunk of the earnings of the partnership. Though contribution is made from the other “limited partners” end, they are not involved in the partnership’s management. The extent of liability of the “limited partners” is capped to the amount of capital contributed by them in the partnership.
Following are the four general characteristics of Limited Partnerships in Canada:
Following are the characteristics of the limited partnerships in Canada:
Important decision making: The general partner of a limited partnership in Canada is the final decision-making authority and limited partners are only informed about the decisions are taken by the general partner.
Public reporting not required: there is no requirement for a full-fledged public reporting of the financial statements of the partnership. Only general-purpose financial information is required in order to run the partnership and to satisfy the needs of the vendors, bankers, tax officials and limited partners.
Limits on expense deductions: there exist some restrictions on the deductions with respect to the expenses. In a limited partnership in Canada, the tax is imposed on the personal tax rates of the individuals.
Limited exposure to the assets of limited partners: as the liability of the limited partners extends to the contributions made by them in the partnership, such limited exposure to the assets becomes an advantage for the limited partners. In a limited partnership in Canada, only the personal assets of the general partner can be seized to settle the legal claims.
The conditions are not stringent for opening a limited partnership in Canada and the persons who are interested in opening a limited partnership can follow the following conditions:
From the above discussion, it can be concluded that a limited partnership registered in Canada has highly flexible business structure with a simple registration procedure. It further does not mandate the partners to file accounts or to pay any corporate tax for the partners who are resident outside Canada. This makes the structure of Limited Liability very feasible for the entrepreneurs related to IT and web service providers.
Read Our Article: Setting up a Partnership in Canada
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