I am Matthijs van Gaalen and I'm a corporate / commercial lending lawyer at Gowling WLG and
you're watching our fifth video as part of our video series different types of borrowing entities. In this video we're going to be discussing limited partnerships
In the last video we discussed general partnerships. A limited partnership is the second type of partnerships that we're going to be reviewing and it's structured a little bit differently than a general partnership. It is formed by the entry into a formal written limited partnership agreement and the filing of a declaration with the applicable provincial government authorities within a limited partnership.
There are two types of partners:
First, a general partner who is actively involved in the management of the business and is fully responsible and liable for the indebtedness and liabilities of the limited partnership.
Second, there are one or more limited partners who are similar to passive investors and who do not have unlimited liability for the debts.
The liabilities of the limited partner are restricted or limited to the amount of its partnership contribution unless it becomes actively involved in the business of the limited partnership. The business and affairs of the limited partnership are regulated and governed by legislation and by the terms of the limited partnership agreement. Typically that agreement will provide that the general partner, acting through its own officers and directors, has the authority to manage the day-to-day affairs of the business and to enter into transactions including loan transactions. It will also impose some limits on the authority of the general partner and will describe a set of fundamental actions that cannot be taken or agreements that cannot be entered into without the consent of the limited partners. In some cases those restricted actions may relate to obtaining loans or granting security in general or security over a certain monetary threshold. The loan and security documents will generally be entered into in the name of the limited partnership but it'll be executed by the general partner acting for and on behalf of the limited partnership.
Certain security documents like real estate mortgages will have to be granted by the general partner as the limited partnerships are not able to own title to real property. However the limited partners generally do not have to sign any of the loan documents unless there's some kind of specific approval or consent that is required under the terms of the limited partnership agreement for the loan transaction, as I previously described to recap, limited partnerships.
First, limited partnerships exist from the execution of a limited partnership agreement and the filing of a declaration.
Second two types of partners – a general partner and one or more limited partners.
Third general partners are fully responsible and liable for the limited partnership.
Fourth limited partners are passive and not involved into the day-to-day affairs of the limited partnership and their liability is limited.
Fifth sometimes a general partner needs the approval of the limited partners for specific actions which can include borrowing loans, guaranteeing debt, or issuing security and finally the general partner signs for the limited partnership.
This presentation was a high level overview on limited partnerships however if you find that you have more specific questions about any of the points discussed or their applications to a specific situation please reach out to any member of our lending team or you can contact me.
Thanks for watching.