A Limited Partnership is more than just an agreement, it’s an actual partnership that is formed and filed at the state level (like an LLC).
Some of its main benefits are the fact that it is simple to form, it allows you to pool money with a trusted business partner, and it 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 below.
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 suited to them.
The Limited Partnership protects your American-based assets and minimizes your tax responsibilities. Income taxes within Canada can be 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 LP must be properly constructed.
Let’s take a look at how a Limited Partnership works. By definition, these agreements must contain four parts to be legally binding: the Partnership Agreement, the Limited Partner(s), the General Partner, and a Certificate of Formation of Limited Partnership filed with the state. Get help from a qualified attorney to make sure you’re protected.
Perhaps you’ve seen some of our videos about using 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. In Canada, an American LLC alone would be taxed as a foreign corporation.
As noted above, there are several parts of the LP 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 to the General Partner while allocating all of the profits to the Limited Partner(s).
Accurate execution 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.
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. It could even mean losing 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.
Royal Legal Solutions also has established relationships with CPAs who specialize in assisting Canadian 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 lucrative, but overlooking 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.
Absolutely—when it’s in an investor’s best interest. We know there are other reasons to use a Limited Partnership and are happy to assist you no matter what your needs are.
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 meet all 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. When forming these agreements, an attorney’s advice can be crucial.
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