A Limited Partnership* (LP) is a popular type of partnership that acts as a private capital-raising vehicle for businesses.
In an LP there must be at least one “General Partner” and at least one “Limited Partner”. The General Partner(s) manage the affairs of — and have unlimited personal liability for — the business.
Limited Partner(s), as their name suggests, may not take part in the control of the business, but have their personal liability limited to their contribution amount, or to an amount agreed upon in the “LP Agreement”.
What Are the Advantages of a Limited Partnership?
One of the key advantages of LPs is the flexibility it offers for managing the business.
While LPs are governed by Ontario’s Limited Partnerships Act (the LP Act), they are largely beholden to their respective LP Agreements. In other words, LPs are as varied as the agreements that create them.
Since a Limited Partner risks losing the benefit of their limited liability status if it engages in day-to-day management of the business, the General Partner has the authority and the obligation to unilaterally manage the business.
LPs differ from corporations where the Board of Directors is often constrained by the need to obtain shareholder approval for many decision-making matters.
Do Limited Partnerships Require Annual Meetings?
The short answer is no.
There is no statutory or common law requirement for an LP to hold an annual meeting. Nonetheless, the Limited Partner(s) do retain certain rights that are generally tied to the business that would be transacted at an annual meeting.
However, without clear guidance and structure in the LP Agreement, the General Partner may be exposed to the inconvenience and expense of having to respond to multiple ad-hoc requests from Limited Partners for reports or meetings regarding the management and affairs of the LP.
Depending on the LP, the partners might agree that an alternative to an annual meeting (such as a written report or an informal conference call) is sufficient, or that a formal meeting is required only every second year, or not at all. The flexibility of LPs allow the partners to choose a form of reporting that is best suited for their needs.
Care should be taken in drafting an LP Agreement to ensure that it is set up properly, and that any provisions do not grant too much control to Limited Partners thereby exposing them to increased liability risk on par with the General Partner.
For assistance with starting a Limited Partnership, or for any other questions or assistance relating to your business, contact our team of professionals at SV Law.
*LPs should be distinguished from Limited Liability Partnerships, which are yet another type of partnership, but much more regulated and only available for use in specific circumstances.
The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.