The limited partnership (LP) is the legal vehicle through which direct-hold investments are structured in Canada. Each named direct-hold solution is constituted as a limited partnership governed by the applicable provincial partnership legislation and a limited partnership agreement that defines the rights and obligations of all parties. The LP form achieves the structural goals of the direct-hold framework — legal isolation of each asset, direct beneficial ownership by unitholders, pass-through income treatment — without the governance overhead of a corporate subsidiary structure.

Key takeaways

• Each direct-hold solution is a separate limited partnership; unitholders participate as limited partners and their liability is limited to the capital contributed — they do not bear personal liability for the debts and obligations of the partnership.
• The general partner manages the business of the partnership and owes fiduciary duties to the limited partners; the limited partners are passive investors with economic rights but no management authority.
• Income and loss flow through the limited partnership to the partners in proportion to their unit holdings; the partnership itself does not pay income tax, and partners receive T5013 information slips for their proportional share of partnership income and loss for each fiscal year.

The limited partnership form

A limited partnership consists of one or more general partners and one or more limited partners. The general partner manages the day-to-day business, holds signing authority, and is personally liable for the debts and obligations of the partnership — a liability that is managed by structuring the general partner as a corporation with limited liability rather than a natural person. The limited partners provide capital and share in the economic results but have no authority to bind the partnership and bear liability only to the extent of their invested capital.

This division of authority and liability is fundamental to the investment structure. The general partner's management authority allows the direct-hold portfolio to be operated under consistent standards and fiduciary discipline across all unitholders; the limited partners' capped liability protects them from loss beyond their investment.

The limited partnership agreement

The partnership agreement is the governing instrument of each direct-hold solution. It specifies the rights and obligations of all partners: the capital account structure, the allocation of income and loss among partners, the conditions for distributions, the transfer provisions that allow limited partners to transfer their units without general partner consent, and the governance procedures for material decisions.

The transfer provisions of the agreement implement the equity transfer model: limited partners may transfer their units to willing counterparties without requiring general partner approval, subject only to compliance with applicable securities law exemptions. The general partner updates the unit register to record the transfer.

Capital accounts

Each limited partner maintains a capital account within the partnership. The opening capital account is the amount of capital contributed at the time of unit acquisition. The capital account is adjusted each fiscal year for the partner's proportional share of partnership income or loss (per the allocation provisions of the partnership agreement) and for any distributions received.

The capital account rollforward — tracking changes from opening to closing — is the primary tool for computing each partner's adjusted cost base for income tax purposes. The T5013 slip issued to each partner at the end of the fiscal year includes the information required to complete the capital account rollforward in the partner's personal or corporate tax return.

Pass-through income treatment

A limited partnership is not a taxable entity for Canadian income tax purposes. The income and loss of the partnership pass through to the partners and are taxed at the partner level in proportion to each partner's unit holdings. This treatment avoids the corporate-level tax on operating income that applies in a corporate subsidiary structure, and allows investors to use their proportional share of partnership losses (if any) against other income to the extent permitted by applicable tax legislation.

Passive losses from a limited partnership — in excess of passive income allocated from the same partnership — are generally restricted under the Income Tax Act's at-risk rules; the specific application depends on each investor's circumstances and is a matter for qualified tax counsel.

Reporting issuer status

A limited partnership that has distributed its units to the public under a prospectus, or that meets the statutory thresholds for reporting issuer status under applicable provincial securities legislation, is subject to the continuous disclosure obligations of NI 51-102 as a reporting issuer. In that capacity, the partnership — represented by its general partner — is required to file audited annual financial statements, interim financial statements, an annual information form, and management's discussion and analysis.

The financial statements of each direct-hold LP are prepared under IFRS (as required for reporting issuers under NI 52-107) and are filed on SEDAR+ as the LP's standalone disclosure record. These filings are the investment-level document set for that specific direct-hold solution; they are not consolidated into the statements of any parent entity.

See also

• accredited-investor-eligibility — the securities law exemption framework under which limited partnership units are distributed to eligible investors
• distribution-declaration-mechanics — how distributions are determined, declared, and paid within the limited partnership structure