Starting a Business / The Business Entity

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Limited Partnerships

A Limited partnership is composed of one or more general partners and one or more limited partners. The general partners manage the business and share full in its profits and losses. Limited partners share in the profits of the business, but their losses are limited to the extent of their investment. Limited partners are usually not involved in the day-to-day operations of the business.

Tax Considerations

A partnership by itself does not pay income tax on its operating results. A partnership agreement can allocate the profits or losses in any ratio agreed to between the partners, but if there is no agreement, the profits must be allocated equally. Business deductions are taken by the partnership before the income is distributed to the partners and claimed on their personal tax returns.

Each partner also has to file either financial statements or one of the following forms:

*Form T2124, Statement of Business Activities
*Form T2032, statement of Professional Activities
*Form T2042, Statement of Farming Activities
*Form T1163, Statement A-NISA Account Information and statement of Farming Activities for Individuals, and
*Form T1164, Statement B-NISA Account Information and statement of Farming Activities for Additional Farming Operations; or
*Fom T2121, Statement of Fishing Activities

Liability

In a Limited Partnership, each partner is liable for debts only up to the amount of his/her investment in the company.

Duration

According to what is agreed to in the partnership agreement. The Limited Partnership does not have to be dissolved and reformed every time a general partner or limited partner dies.

How to set up

Like a sole proprietorship, a partnership is easy to form. In fact, a simple verbalagreement is enough to form a partnership. But if money and property are at stake, you should have a written agreement.

In Canada Limited Partnerships must register their business name, under the Provincial Partnership or Business names Act with the Corporate Registry Office.

Advantages

*Investors have liability limited to their respective investment in the partnership;
*The Limited Partnership is a separate entity and may sue and be sued, own property, protect its limited partners from unlimited liability, raise capital by selling interest in the partnership, borrow money, and exist independently of its partners' mortality;
*The Limited Partnership does not have to be dissolved and reformed every time a general partner or limited partner dies.
*Ability to borrow money, develop general partner savings, raise funds from operations, plus sell limited partner interests to generate capital;
*Managed by the general partner and not subject to investor interference; and
*Partners pay the tax because profits and losses pass through the entity to the partners

Disadvantages

*A Limited Partnership requires advanced accounting procedures;
*Does not live in perpetuity, but lives for a stipulated period-usually for the life of the assets it owns;
*Limited partners have little voice in management once the investment is made in the partnership