What is a Limited Partnership?
Limited Partnerships are commonly used for investment funds, real estate projects, and family businesses in Canada.
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Not Ideal For: Businesses seeking complete liability protection for all owners.
Tax Structure Deep Dive
LP taxation is generally pass-through taxation subject to federal and provincial tax laws.
Summary Framework
Limited partners are generally taxed individually while partnership income flows through to the partners.
Structural Comparison Matrix
| Structure | Liability Protection | Tax Framework | Complexity | Ownership | Best For |
|---|---|---|---|---|---|
| Business Corporation | Full | Pass-through (S Corp election) | Moderate | Shareholders (max 100, US only) | Established businesses wanting tax savings |
| C Corporation | Full | Double (Corporate + Personal) | Complex | Shareholders (unlimited) | Venture capital-funded startups & large enterprises |
| Cooperative | High | Special Tax Treatment | High | Owned and controlled by its members through democratic voting. | Best for Member-Owned Organizations |
| Corporation | Full Corporate Shield Protection | Corporate Tax System (Federal + Provincial Rates) | Medium to High | Shareholders and Board of Directors (Min 25% Canadian resident directors required federally) | Canadian Growth Businesses & Startups |
| Extra-Provincial Registration | Maintains Active Corporate Shield | Multi-Provincial Apportioned Corporate Tax | Medium | Governed by the parent corporate structure | Interprovincial Canadian Businesses |
| Limited Liability Partnership | High | Pass-Through Taxation | Medium | Two or more licensed professionals operating as partners. | Best for Professional Partnerships |
| Limited Partnership | Partial | Pass-Through Taxation | Medium | One or more general partners and one or more limited partners. | Best for Investment and Multi-Owner Businesses |
| LLC | Limited | Pass-through | Simple | Members (unlimited) | Small business owners seeking liability protection |
| LLP | Partial (partner-to-partner) | Pass-through | Moderate | Partners | Professional service firms |
| LP | Limited (for limited partners only) | Pass-through | Moderate | General + Limited Partners | Real estate & investment funds |
| Nonprofit | Limited (for directors) | Tax-exempt (501c3) | Complex | No owners — board governed | Charitable & mission-driven organizations |
| Nonprofit Corporation | High | Nonprofit Tax Treatment | Medium | Member-based ownership structure without profit distributions. | Best for Mission-Driven Organizations |
| Partnership | Joint and Several Personal Liability | Pass-Through Joint Taxation | Low to Medium | Two or more general partners (or combination with limited partners) | Collaborative Canadian Co-Founders |
| Partnership | Limited to No Protection for General Partners | Pass-Through (Shared Business Tax) | Low to Medium | Two or more general or limited partners | Professional Service Co-Founders |
| Persona Física con Actividad Empresarial | Zero Asset Protection | Individual Progressive Income Tax | Low | Sole individual owner (RFC holder) | Mexican Solopreneurs |
| PLLC | Targeted Professional Liability Protection | Flexible (Pass-Through or Corporate Election) | Medium to High | Licensed professionals within the same industry | Doctors, lawyers, accountants & architects |
| Professional Corporation | High | Corporate Taxation | High | Owned by one or more licensed professionals subject to provincial rules. | Best for Licensed Professionals |
| Sociedad Anónima de Capital Variable | Full Corporate Veil Protection | Mexican Federal Corporate Tax (ISR) | High | Minimum of 2 shareholders; Managed by a Sole Administrator or Board of Directors | Standard Mexican Commercial Corporations |
| Sociedad Anónima Promotora de Inversión | Premier Corporate Shield | Corporate Tax with Investment Structuring Support | Very High | Highly flexible board management; customized voting and dividend classes | Investment-Ready Mexican Startups |
| Sociedad Civil | Partial Liability Protection for Partners | Cash-Basis Corporate Taxation | Medium | Two or more licensed partners (SOCIOS) | Mexican Professional Practices |
| Sociedad de Responsabilidad Limitada | Limited Partner Liability Shield | Mexican Corporate Tax (ISR) | Medium to High | Minimum of 2, maximum of 50 partners | Closely-Held Mexican Businesses |
| Sole Proprietorship | Unshielded Liability | Personal Income Tax Integration | Very Low | One individual | Canadian Solopreneurs & Freelancers |
| Sole Proprietorship | No Protection (Unlimited Liability) | Direct Personal Pass-Through | Minimal | Single individual owner | Freelancers & Solo Contractors |
| Unlimited Liability Corporation | No Liability Shield (Unlimited Shareholder Exposure) | Hybrid (Corporate locally, Pass-Through internationally) | High | Shareholders (Domestic or International) | US-Canada Cross-Border Enterprises |
Quick Facts
- Liability Protection Partial
- Taxation Pass-Through Taxation
- Ownership One or more general partners and one or more limited partners.
- Best For Best for Investment and Multi-Owner Businesses
- Formation Cost $300 - $1,500
- Compliance Level Medium
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