Registering a limited partnership in Ontario can prove highly beneficial for Ontario-based businesses and foreign investors. However, it can feel daunting looking at the required forms and evaluating costs involved.
We’re here to help you by providing advice and assistance in deciphering all of the necessary steps involved in registering a limited partnership in Ontario. In this article we will guide you through the registration process and outline any considerations to make this process as easy as possible.
Before you register for a limited partnership, you must first understand what it is and how it differs from other business structures in Ontario.
What Is a Limited Partnership?
In Canada, there are many ways to register a business: Limited Partnership, Sole Proprietorship, General Partnerships, Extra Provincial Licence, Limited Liability Partnerships and Incorporation. Each registration type has a different business structure, which provides many options for entrepreneurs looking to operate a business in Canada.
Limited Partnerships in Canada are available in all provinces including the most popular Nova Scotia, Prince Edward Island, and British Columbia where more global investments into Canada are requested.
In a limited partnership, the partnership consists of a general partner, who bears the brunt of the business liability, and a limited partner. The limited partner benefits from significantly less liability in regards to debts and any obligations incurred by the company. Moreover, the extent of a limited partner’s involvement determines the degree of liability they have in the partnership.
A limited partnership is distinct to a sole proprietorship or incorporation in four defining ways:
- It is run by a general partner with unlimited liability and supported by another limited partner(s)
- The primary or general partner draws the largest share of the earnings to counterbalance his or her increased risk and contribution
- Limited partners volunteer capital but have no involvement in company management
- Limited partners are liable proportionate to the amount of capital they invest in the partnership
A limited partnership is free from the audit requirements incumbent on other types of businesses. But to better determine if an Ontario limited partnership registration is right for your business, it’s helpful to compare them with other business models.
An incorporated business turns a sole proprietorship or limited partnerships in Canada into a business recognized as a legal entity. Incorporation gives it additional rights and protections and may be the logical next step for a fast-growing business.
It is worth noting that businesses incorporated in Ontario only have name protection within the Province of Ontario. Incorporating at the federal or Canada level requires a very strong unique business name but does provide better name protection for the business.
In order to incorporate your business, you must pay a $360 fee and incur costs relating to agent fees, lawyers and other governing services to cover all costs involved.
A sole proprietorship is an unincorporated business that is owned and managed by one individual. They are responsible for making all business decisions and can therefore claim all of the profits. They pay income tax on the net income generated by their business.
A key difference between an incorporated business and a sole proprietorship is that it does not hold legal status separate from the business, meaning the owner will take on all of the liability and risk. If the business goes under, then their personal assets are at risk in order to cover any losses.
For more information on the differences between registering a small business or incorporating, check out the blog “What is the Difference Between Registering a Business and Incorporating?” for a list of the several major differences between the two.
Reasons to Start an Ontario Limited Partnership Registration
So, what makes an Ontario LP popular with investors?
In Ontario, Limited Partnerships are most popular by out-of-province and foreign investors who are looking to invest their capital. Since Ontario has no residency requirements for members of a limited partnership, this structure is very appealing to this group of non-Canadian residents.
Some of the benefits derived from foreign and local involvement in Ontario’s limited partnership company formations include:
- Ability to gain respected provincial business rating
- No minimum or maximum capital investment; contribution amounts are not outlined by the province
- Any fiscal gain originating outside Canada are not eligible for Canadian taxation
- No requirement for annual meetings
These are not the only benefits available to members of a limited partnership in Ontario. Other considerations when investigating registration for a limited partnership range from its operational ease to the partnership’s freedom from income tax and double taxation.
Ease of Operations
Incorporated businesses involve multiple managerial bodies with different stakes in a company, whereas the division of capital in a limited partnership is reflected in its business structure. Typically, there is one general partner with majority ownership in the partnership agreement.
Since they have majority ownership, general partners also have the deciding vote in what and how things happen within the limited partnership. This established hierarchy helps establish rules regarding raising capital and also leads to low operational costs and fewer formalities.
Unlike other business models, an Ontario LP does not require public reporting. While general financial information is issued to bankers, vendors, and tax collectors for transparency, cash flow is overseen internally, for the most part.
Legal Status of Limited Partners in Ontario
Since the general partner undertakes any fiscal and liability obligations, they become primarily responsible for any significant losses incurred by the partnership. This is hugely advantageous for the limited partners since only the assets belonging to the general partners are seized in the event of financial collapse.
While the limited partner will not be entirely without obligation, it is relative to the risk taken by the partner investing their capital. This makes it possible for a limited partner to walk away from financial debts and obligations in a limited partnership at minimum cost or risk.
Limited Partnerships Are a Flow-Through Loss Entity
Another key attraction from the investor’s perspective is that Ontario LP’s are a flow-through loss entity. Consequently, this means that should the business incur financial debts or obligations, the entity registered as a limited partnership does not bear the loss.
Instead, loss defaults to the partners, and the general partner shoulders the brunt of the loss. Limited partners are then only liable proportionate to their financial involvement in the partnership.
Ontario LP’s Do Not Incur Income Tax
By the same token, any income the partnership generates is not viewed as stemming from the partnership but from the investors. Consequently, the limited partnership does not accrue income tax.
Instead, the Ontario Government views the gains made by a limited partnership as stemming from personal income. The partners receive tax on earnings derived from their investment in the limited partnership. The amount of tax received is relative to the amount of capital contributed by limited and general partners.
Limited Partnerships in Ontario Are Not Subject to Double Taxation
In double taxation, the corporation is taxed first as a corporate entity and again based on the shareholder earnings derived from any corporate investment.
But because the financial gains incurred by the limited partnership count as the investor’s private income, limited partnerships in Ontario, unlike other types of corporations, are not subject to double taxation.
Reporting Taxes for a Limited Partnership
Although a limited partnership’s flow-through status allows the partnership to avoid income tax and double taxation, that doesn’t mean partners avoid taxes entirely.
The government views income generated by a limited partnership as passive income. Passive income derives either through rental property or through participation in a business you have no controlling interest in.
Because of the minimal involvement of a limited partner in the managerial aspect of the partnership, any gains or losses through the partnership constitute passive income.
Any money accrued from involvement in a limited partnership is classified as passive income and taxed as a personal gain rather than a business gain.
How to Report Limited Partnership Earnings for Taxation
Rather than filing an income tax return on behalf of the limited partnership, each partner files their losses and earnings individually. But because the money comes from the limited partnership, all partners can avoid self-employment taxation. This is an additional benefit of the partnership.
To report earnings and losses to the government, partners must complete the T5013 form on the statement of partnership income. The T41068 form also offers a guide on how to correctly report money earned through a limited partnership. And the T5013 Instructions form guides new partners through the steps to report earnings from a limited partnership.
The Limited Partnerships Act in Ontario
We’ve covered the benefits of a limited partnership. However, before registering for a limited partnership in Ontario, it is necessary to understand what the Ontario legislature surrounding it entails.
The Limited Partnerships Act, which details the conditions of what constitutes a limited partnership in Ontario, says that limited partnership is dependent on the limited partner’s abstention from undertaking the primary management of, or having a controlling interest in, the partnership.
This makes the limited liability of the partnership conditional and necessitates that the general partner controls the limited partnership at all times.
This differs from other provinces, for example, in Manitoba, where a limited partner can function as a primary business concern provided the third party they interact with is unaware of their limited partner status.
Don’t let this discourage you from registering a limited partnership in Ontario. Each provincial registration procedure comes with attendant drawbacks. Registering a limited partnership in Manitoba, for instance, requires:
- Increased Costs
- Public Disclosure
- Priority of Creditors
- Limited Partner Liability if Limited Partner’s name is included in partnership name
These last two articles are vitally important because they make the limited partners liable to asset seizure by creditors. It further makes the limited partner accountable for debts and obligations the partnership incurs when the limited partner’s name also appears in the partnership name.
By contrast, Ontario’s legislature stipulates that a limited partner who is also a creditor in the partnership is eligible to receive a percentage of seized assets alongside general creditors. It similarly protects limited partners whose names appear in the partnership name, such that only the general partner is held accountable for financial debts and obligations.
After assessing the pros and cons of registering for a limited partnership in Ontario, we’re going to outline who is eligible for registry and what it entails.
Who Is Eligible for a Limited Partnership?
Registering a limited partnership differs on a provincial level, and some provinces have stipulations regarding the types of professions eligible to register a limited partnership, such as lawyers or doctors.
But if you are registering a limited partnership in Ontario, then the process isn’t as complex because not only are there no such stipulations, but there are no residency requirements.
The lack of residency requirements make registering for a limited partnership in Ontario particularly appealing to foreign investors looking to invest capital into a business.
How to Register a Limited Partnership in Ontario
There are several moving parts involved in registering a limited partnership in Ontario. Primarily these are made up for the partners, but there are other considerations for limited partners as well.
When establishing a limited partnership in Ontario, one of the first decisions to be made is who acts as the general partner. This is crucial to establishing the limited partnership as the general partner has both the power to make decisions affecting the limited partnership and bears the majority of the partnership’s fiscal responsibility.
With that in mind, there can be more than one general partner behind a limited partnership. It is also possible for the general partner to be a corporation. However, if the general partner is an incorporated company, the corporation must be registered inside Ontario before the partnership can begin.
Notably, a general partner can simultaneously operate as a limited partner within a limited partnership. This means that in some instances, it only requires one person or corporation to establish a limited partnership in Ontario. In this instance, the active partner has the responsibilities of the general partner and the benefits of a limited partner.
In addition to a general partner, a limited partnership in Ontario requires a minimum of one limited partner. As established, the general partner can also function as a limited partner, minimizing involvement in the partnership, but this is not always the case.
The limited partner can be an individual and/or a legal entity and financially backs the limited partnership without the risk of financial liability or obligation.
However, the mitigation of financial risk means the limited partner has less managerial influence, and they are unable to act on behalf of the limited partnership. Moreover, their contribution to the partnership can only be fiscal and not managerial.
It is, however, possible for a limited partner to undertake various tasks for the partnership. Tasks regarding employees, sureties, or contractors can be handled providing the limited partner is at no time viewed as controlling or otherwise influencing the partnership.
There are no Canadian residency requirements to register a limited partnership in Ontario.
However, if a non-Canadian corporation registers for a limited partnership in Ontario, it is not required that the corporation register extra-provincially.
Contributions Required to Form a Limited Partnership
While there is no pre-ordained minimum contribution for establishing a limited partnership in Ontario, the agreement outlining the partnership may put forward specific fiscal minimums expected by the partners. These may also outline any auxiliary capital contributions required of the limited partners.
What Forms Are Involved in Registering for a Limited Partnership in Ontario
The formation of a limited partnership in Ontario requires the parties involved to complete a Form 3 – LPA Form 3 Limited Partnership and submit it to the Ministry. There is the availability to also use a service company, a lawyer, or to go through the Ministry directly.
Completion of the Form 3 requires the applicant to specify:
- Firm Name
- Registrant Mailing Address
- Registered office – Address of Primary Business in Ontario, If Any
- Nature and Description of Business
- Information Pertinent to General Partners, Name Change, Renewal or New Declaration
- Information Detailing Limited Partners
- Ontario Corporation Number, If Any
- Residential Address(es) of General Partner(s)
Note that information pertaining to general partners, name change, and/or renewal must be signed by all general partners or power of attorney. In the event of multiple general partners, the applicant registering for a limited partnership must provide the number of general partners and attach their schedules.
Similarly, in completing the section on limited partners, general partners in an Ontario limited partnership must record details on all limited partners and their registered office in Ontario. If the limited partner is outside Ontario, then records should be maintained by an attorney representative within the province.
If you wish to operate a secondary business name under the limited partnership, you will also need to complete Form 5 in order to register the “operating as” business name.
Transferring a business, such as a proprietorship or general partnership, to a limited partnership also requires that you complete a change of name form.
Note that completing the change of name form will require you to consult Service Ontario’s records of pre-existing registrations to confirm your business name is not in use. We recommend completing a business name search by conducting a NUANS preliminary search in which most businesses across Canada including registered, incorporated and trademarked business names can be viewed for any confusion or conflict.
Applications for a limited partnership in Ontario can be submitted through Ontario Business Central by submitting an inquiry for an Ontario LP registration (Form 3), Form 5 (Operating as name) or Name Change Form for LP request with us.
Email directly to firstname.lastname@example.org or alternatively you can reach us by calling our office at 1-416-599-9009 or 1-800-280-1913.
Importantly, Service Ontario only has one location that accepts in-person applications. It is open 8:30am – 4:00pm Monday to Friday, with no weekend availability.
If you wish for the documentation to be hand delivered, the Form 3 can be emailed, mailed or couriered to our office directly and we will provide it to the province in person. If you wish, we can also complete the form 3 or form 5 application and email it to you to obtain original signatures for an additional fee.
When we file a new Form 3, the completed documents are received back on a same day basis. Our current fees for hand delivery of the new documentation, email and mailing of the form 3 is as follows:
$47 +taxes – our fee
$210 – Government fee
$14 +taxes- Handling fee
Total with taxes = $278.93
Our current fees for preparing the new document and emailing to you for original signatures are as follows:
$99 +taxes – our fee
$210 – Government fee
$14 +taxes- Handling fee
Total with taxes = $337.69
Optional preliminary Nuans search is an additional $12.99+taxes.
What Is the Cost of Registering a Limited Partnership
Another advantage of setting up a limited partnership is that there is minimal cost involved in the registration process. That does not mean, however, that is without any cost.
To register a new limited partnership in Ontario, there is a $210.00 government fee . The same charge is due from partnerships pursuing renewals and name changes.
The Form 3 declaration is active for 5 years at which time the registration requires renewal where the same form is provided with an additional $210.00 government fee.
If the renewal date is missed there is an additional $150 penalty government fee required when submitted after the expiry date has passed from the date of registration. When combined with the $210 renewal fee, a late renewal cost the applicant $360.00.
There are no fees to dissolve or withdraw the registration.
If the partnership engages legal assistance in the registration process, partners should expect to incur further administrative costs.
How to Pay
How you pay the costs resulting from a limited partnership registration in Ontario varies depending on how the application is submitted. As with the submission of limited partnership registration forms, applicants have the option to submit in-person or by mail. If you wish for us to complete the submission in person on your behalf, please contact us to provide details and payment.
Applicants who wish to submit registration for a limited partnership in Ontario through Service Ontario by mail must pay in either cheque or money order.
Money orders should be made payable to:
Ministry of Government and Consumer Services
Central Production and Verification Services Branch
375 University Ave, 2nd floor
Toronto, ON M5G 2M2
The above address is the only Service Ontario location to accept in-person applications. It is open for applications between 8:30am-4:00pm Monday through Friday, with holiday closures, as per Ontario’s statutory holidays.
In the event you must complete a change of name form or late renewal, there are further costs to consider.
How Long Does it Take to Register a Limited Partnership in Ontario?
Once you have submitted an application to register a limited partnership, approval can take up to 20 business days. This is calculated from the date of the ministry’s receipt of payment and application.
The registration is filed and completed on a same day basis.
Registering a limited partnership in Ontario can seem daunting. It requires a number of forms to fill in and expectations met. It also demands detailed attention to nuances that vary depending on each businesses’ needs, and in some instances, an understanding of different partnership legislatures across different provinces.
However, the benefits of registry outweigh the cons and with a bit of help and advice, the forms can be easily navigated.
We are committed to making the process as straightforward as possible. Since 1992 our commitment to and celebration of Canadian entrepreneurs has helped us cultivate the expertise to make registering your business easier than ever.
Whatever your business needs, we aim to offer informative, expert advice that enables you to launch your business. Our online portal offers valuable insights, and answers many questions pertinent to start your business, incorporate your business, other company formations, making changes to your business or even closing or cancelling a business. Our team is here to help you realize your business goals.
Should you have any questions, please feel free to reach out to our staff for additional information and assistance.
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Ontario Business Central Inc. is not a law firm and cannot provide a legal opinion or advice. This information is to assist you in understanding the requirements of registration within the chosen jurisdiction. When you have legal or accounting questions, we recommend that you speak to a qualified professional.