In a limited partnership, a limited partner’s liability is limited to the value of money and other property contributed by him/her/it. However, activity of the limited partner can alter the legal relationship set out in legislation. If a limited partner takes part in the control of the business, he/she/it will be liable as a general partner. The question of whether the limited partner took part in the control of the business is a quantitative matter and each case is to be decided on its own facts.
In Zivot, the plaintiff named the limited partners as defendants, claiming they took part in the control of the business. The court awarded judgment for the plaintiff, as it found the limited partners managed the partnership, were responsible for the partnership and its managerial decisions, and signed cheques on behalf of the partnership.
In Foley v R, the court emphasized that subsection 12(1) of the LPA allows a limited partner to transact business with, and not for, the limited partnership and subsection 13(1) exempts liability to a limited partner unless the limited partner takes part in the control of the business. The court found the limited partners liable because they signed cheques, dealt with the bank, did various office administrative jobs, instructed lawyers regarding litigation, and shared control of the whole business and the responsibility for its success or failure.
The court in Giammarco & Co. (Western Division Ltd.) v TRL Real Estate Syndicate (05) Ltd. reviewed case law addressing the liability of limited partners, ultimately concluding that each case must be determined on its facts. In such analyses, courts have considered the nature of the business of the partnership, the actions taken by the limited partner, and the terms of the limited partnership agreement. Furthermore, to find limited partners liable, there is no requirement for complete control of the business or portions of it. The language in the legislation, “takes part in the control”, suggests something less than seizing control.
This serves as a caution to limited partners to appreciate that their actions can alter the extent of their liability in a limited partnership.
- Limited Partnerships Act, R.S.O. 1990, c. L. 16, s. 9 [LPA].
- Haughton Graphic Ltd. v Zivot (1986), 33 B.L.R. 125 at para 36 [Zivot].
- LPA, s. 13(1).
- Zivot at para 30.
- Ibid at para 38.
- Ibid at para 2.
- Ibid at para 13.
- Foley v R, 2003 TCC 680 at para 11.
- Ibid at paras 14 and 17.
- Giammarco & Co. (Western Division Ltd.) v TRL Real Estate Syndicate (05) Ltd., 2015 ABQB 587 at para 22.
- Ibid at para 58.
- Ibid at para 58.