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A Limited Partnership (LP) is a type of agreement that you can use to structure real estate and other business deals. Some of its main benefits are the fact that it is simple to form, allows you to pool money with a trusted business partner, and offers significant tax benefits depending on your location. The Limited Partnership offers particular asset protection benefits to Canadian real estate investors with assets in the United States. Learn more about these benefits, other uses of the Limited Partnership, and how Royal Legal Solutions can help you with your Limited Partnership below.
How the Limited Partnership Offers Asset Protection to Canadian Real Estate Investors
While American investors are generally better off holding their real estate assets within a Series LLC or other LLC structure, the Canadian real estate investor operates in a different legal context. Canadian regulations on these corporate entities and tax challenges mean that Canadian investors will need asset protection strategies that take these elements into consideration. The Limited Partnership is a key tool for protecting your American-based assets and minimizing your tax responsibilities. Income taxes within Canada can be rather high, but the Limited Partnership agreement allows investors to gain liability protections while managing these profits in a tax-friendly manner. Of course, to reap these benefits, the Limited Partnership must be properly constructed.
Let's take a look at how a Limited Partnership works. By definition, a these agreements must contain three parts to be legally binding:
- the Partnership Agreement,
- the Limited Partner(s), and
- the General Partner.
The supervision of a qualified attorney is essential to ensuring that you get the full legal protections from your Limited Partnership.
Why Can't Canadian Investors Use an LLC Structure Alone?
Perhaps you've seen some of our work advocating the use of the Series LLC for asset protection. While this strategy is great for U.S. investors, no single asset protection strategy is "one size fits all." For Canadian investors with real estate investments inside the U.S., the Limited Partnership is superior to the LLC for several reasons:
- Pass-through taxation. Limited Partnership income can be "passed through" and reported on your personal income tax return. Learn more from our free educational resource about the value of pass-through entities for real estate investors.
- Corporate taxes apply to LLCs in Canada. While the LLC is a great investment vehicle in the United States, and qualifies for pass-through treatment in the American tax system, Canadian laws treat the LLC differently. As a result, the taxes are often too high for most investors to justify when a Limited Partnership can accomplish similar goals.
- Limited Partnerships offer liability protections similar to the LLC, but without the costs associated with them. In Canada, an American LLC alone would be taxed as a foreign corporation.
- LLCs can play a role within a Limited Partnership. As noted above, there are three parts of the agreement. For Canadian real estate investors, the General Partner is typically a traditional LLC, or shell company, that is filed in the state where the Limited Partnership will be conducting business. The Partnership Agreement must also be drafted to isolate all of the operations of the Limited Partnership to the General Partner while allocating all of the profits to the Limited Partner(s). Accurate execution of this is vital to ensure that liability attaches to the General Partner/LLC, while all of your actual assets and profits are protected. Our experts are familiar with these provisions and can help you understand them in greater detail.
Choose Royal Legal Solutions For Your Limited Partnership Agreement
It is imperative that the documentation for a Limited Partnership is both drafted and filed correctly. Consequences for failing to do this could be anything from hefty tax penalties to loss of liability protections, or even your right to do business in the U.S. Fortunately, Royal Legal Solutions has years of experience creating these agreements with the protection of your assets in mind. We also maintain relationships with CPAs licensed to practice in both the United States and Canada to assist our international clients’ unique needs. Finally, we also keep current on law regarding these matters. For instance, you must pay certain fees with the state you do business in and ensure your Partnership is on file. As a limited partner, you must also refrain from engaging in certain business activities to maintain your liability protection--which is most likely the entire reason you're creating a Limited Partnership in the first place.
Royal Legal Solutions also has established relationships with CPAs who specialize in assisting international investors. Many of these CPAs are certified in both the United States and Canada. We have been assisting clients from all over North America for years, and are familiar with the many legal technicalities that you will encounter as a Canadian citizen with assets in the United States.
Cross-border investing can be extremely lucrative, but overlooking even minor details in a Partnership Agreement or during the purchase, sale, or transfer of property, can result in costly and time-consuming errors. When you partner with Royal Legal Solutions, you will have some of the industry's finest attorneys and CPAs on your personal real estate dream team. As investors ourselves, we know what to look for and take pride in setting you up for investment success.
There is no good reason to take unnecessary risks with your hard-earned assets. Start safeguarding your investments with the help of our experts today. If you’re an investor in need of a Limited Partnership or wondering what you can do to protect your American properties from lawsuits, don’t wait until someone actually files a lawsuit against you. By then, it will be too late. Asset protection works best ahead of time. Be proactive, not reactive. Contact Royal Legal Solutions today to speak directly to an attorney about your situation or set up your personal consultation now.