Duhaime's Law Dictionary

Limited Partner Definition:

A unique colleague in a partnership relationship who has agreed to be liable only to the extent of his (or her) investment.

Limited partners in a limited partnership arrangements. Limited partners have no right to manage the partnership.

Limited partners are usually just investors or promoters who seek the tax benefits of a partnership but none of the exposure to joint and several liability as between partners.

In Backman v Canada, the Canadian Federal Court of Appeal held that:

"A limited partner does not become liable as a general partner unless, in addition to exercising his rights and powers as a limited partner, he takes part in the control of the business.

In the ordinary case, a limited partnership will consist of a general partner that will control the business and limited partners who will have made financial or other contributions but who will not be actively involved in the business. However, that obviously does not mean that the limited partnership is not carrying on a business. The business is being carried on in common by all the partners, but is controlled by the general partner."

In Lehndorff, Justice Farley of the Ontario Court wrote:

"A limited partnership is a creation of statute, consisting of one or more general partners and one or more limited partners. The limited partnership is an investment vehicle for passive investment by limited partners.

"It appears to me that the operations of a limited partnership in the ordinary course are that the limited partners take a completely passive role (they must or they will otherwise lose their limited liability protection which would have been their sole reason for choosing a limited partnership vehicle as opposed to an "ordinary" partnership vehicle).

"The limited partners leave the running of the business to the general partner and in that respect the care, custody and the maintenance of the property, assets and undertaking of the limited partnership in which the limited partners and the general partner hold an interest."


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