Limited partnership structure

The limited partnership (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. The Canada and United States Direct-Hold Solutions are structured through this vehicle. The established Canada vehicle is governed by provincial partnership legislation and a limited partnership agreement that defines the rights and obligations of all parties; the planned United States vehicle is intended to follow an equivalent structure once established. The Spain SOCIMI and Mexico FIBRA are not limited partnerships and are not covered by this article.

Key takeaways

• Each LP-form 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.

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 LP-form 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 to any eligible counterparty subject to a short, enumerated list of grounds on which the general partner may decline a specific transfer, and the governance procedures for material decisions.

The transfer provisions of the agreement implement the equity transfer model: the general partner admits any transferee as a limited partner, subject to the transferee completing the required transfer documentation and the representations set out in the partnership agreement. If the general partner becomes aware that beneficial owners of 45% or more of the outstanding units are, or may be, financial institutions, it has the right to refuse to issue or register a transfer of units to a person unless that person confirms it is not a financial institution. A separate mechanism can require a holder to divest if their status would create adverse tax consequences for the partnership, and an acquisition crossing 20% of outstanding units triggers a Take Over Bid mandatory-offer requirement rather than an ordinary transfer.

Covenant waiver and amendment mechanics

The interest coverage ratio covenant, along with the partnership's other borrowing-discipline covenants, is not absolute: a Special Resolution allows limited partners to waive the borrowing covenants — including the interest coverage ratio floor that gates new debt issuance — increase the fund-raising cap, or approve other fundamental changes to the partnership's governing documents. A Special Resolution requires a defined supermajority of votes cast, or an equivalent written resolution; the specific vote threshold is set out in each LP-form direct-hold solution's partnership agreement. Because that supermajority sits with the limited partners rather than the general partner, the covenant floor cannot be relaxed unilaterally by management — any waiver carries the same investor-consent standard as any other fundamental amendment to the partnership's governing documents.

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.

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. The tax treatment of any partnership loss depends on each investor's own 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