The Principle of Limited Liability

One of the main advantages of a limited partnership (“LP“) is that it allows certain partners, known as limited partners, to participate financially in a project without being exposed to the unlimited personal risks associated with management. In principle, limited partners are liable for the debts of the partnership only up to the amount of their agreed contribution to the common fund ¹ .

This limited liability regime encourages passive investment, particularly in real estate and growth capital venture.

The Limits Imposed by the Civil Code of Québec

The Code civil du Québec (« C.c.Q. »)² , under Article 2244, strictly regulates this protective regime. It provides that a limited partner may only play a consultative role in the management of the LP. Specifically, a limited partner is prohibited from:

• Negotiating business on behalf of the partnership;
• Acting as the partnership’s agent or representative;
• Allowing their name to be used in documents or instruments of the LP.

If a limited partner exceeds these limits, it is considered interference (immixtion) in the affairs of the LP. Such interference can result in the loss of limited liability, making the partner liable as a general partner, i.e., jointly liable for the debts of the LP in the event that the partnership’s assets are insufficient ^{3 .}

Two Conditions for Triggering a Limited Partner’s Personal Liability

That said, a limited partner’s personal liability beyond their agreed contribution may only be triggered if both of the following conditions are met:

1. The limited partner has actively participated in the management of the LP’s affairs, going beyond the consultative role permitted by law;
2. Through their actions, the limited partner has misled a third party into believing they were contracting directly with the limited partner, or that the limited partner was acting as a general partner.

The Court of Appeal has clarified that internal management actions taken by a limited partner are insufficient on their own to engage their personal liability toward third parties. Liability is directly linked to acts involving third parties ⁴ .

The first paragraph of Article 2244 C.c.Q. allows a limited partner to give consultative advice regarding the management of the partnership, but this does not, in itself, create liability, even if the partner takes on a more active role ⁵ .

For a limited partner to be held personally liable beyond their contribution, there must be both active participation in management and an act that could lead a third party to believe that they were dealing with the limited partner as if they were a general partner. This condition is met when the limited partner has performed any of the prohibited acts listed in the second paragraph of Article 2244 C.c.Q ⁶ .

Importantly, the third party is not required to prove that they actually believed the limited partner was acting as a general partner or had personally assumed responsibility. In other words, interference under Article 2244 C.c.Q. does not require evidence of an actual mistaken belief on the part of the third party ⁷ .

Interference vs. Piercing the Corporate Veil: Two Distinct Concepts

It is important to distinguish interference from the piercing of the corporate veil ⁸ , which applies to corporations. An LP does not have a separate legal personality, which explains why a limited partner’s liability can be more easily triggered in cases of ambiguous or misleading behavior.

Subsidiary Liability

Even when a limited partner becomes liable “as a general partner”, they retain the benefit of discussion: their personal assets can only be seized if the LP’s assets are insufficient to pay its debts. Their liability remains subsidiary, not primary.

Measures to Avoid Confusion

In this type of structure, it is common for the same individual to act as a director, officer, or agent of a limited partner and as a director or officer of the general partner in the LP. This dual role can easily lead to confusion for third parties, especially concerning the actual identity of the person they are dealing with.

It is therefore essential for such individuals to clearly specify their role when acting on behalf of the LP. If not, they risk creating confusion about the identity of the contracting party, which could result in the application of the second paragraph of Article 2244 C.c.Q. and the loss of the limited liability protection usually afforded to limited partners.

Conclusion

Interference in the affairs of an LP is one of the main situations that may result in the loss of limited liability for a limited partner. However, in Québec, this is not automatic. Two conditions must be met: prohibited active participation, and conduct likely to mislead a third party.

This balanced legal framework helps to protect third parties while ensuring legal certainty for passive investors, as long as they strictly respect the limits of their role.

¹ Code civil du Québec, RLRQ c CCQ-1991[C.c.Q.]., art. 2246.
2 Ibid, art. 2244.
³ Ibid, art. 2244.
⁴ Enerkem Alberto Biofuels c. Papillon et Fils Itée , 2019 QCCA 1334 (disponible sur CanLII), au para 75.
⁵ Paul Martel, « Société en commandite : l’immixtion des commanditaires dans la gestion est-elle vraiment une source de responsabilité ? » (2006) 66R. du B. 247, p. 259.
⁶Jean-François Hébert et Audrey Lévesque, « La responsabilité limitée des commanditaires » dans Revue du notariat, vol 110-3, Montréal (QC), Chambre des notaires du Québec, 2008, 917, p. 936.
⁷ Ibid, au para 83.
⁸ Ibid, au para 85.
⁹ Supra note 6 aux p. 935-936.

By Me Roxanne Dupuis