The Limited Liability of Limited Partners: A Protection to Be Nuanced<\/b><\/p>\n
One of the main appeals of the limited partnership (\u201cLP\u201d<\/b>) lies in the limited liability granted to limited partners. In principle, limited partners are only liable up to the amount of their contribution to the common fund, making this structure attractive to investors who wish to support a project without being exposed to the risks associated with management.<\/p>\n
What is Meant by the \u201cAgreed Contribution\u201d<\/b><\/p>\n
In the event the LP\u2019s assets are insufficient, the general partner is jointly liable for the LP\u2019s debts toward third parties. The limited partner, however, is liable only up to the amount of their agreed contribution, even in the case of a transfer of their interest in the fund\u00a01<\/sup> .<\/p>\n It is crucial to understand what \u201cagreed contribution\u201d actually means. It does not only refer to amounts already paid into the LP, but also includes any amount the limited partner has committed to contribute (commonly referred to as the agreed contribution), even if that amount has not yet been paid. In other words, a limited partner may be held liable up to the full amount of their commitment, whether or not it has been disbursed at the time a claim arises.<\/p>\n Liability in the Case of Distributed Profits<\/b><\/p>\n A limited partner\u2019s liability may also be triggered if they receive a share of the LP\u2019s profits, and that distribution reduces the common fund. In such cases, the limited partner is required to return the amount necessary to cover their share of the resulting deficit, even if they have already fulfilled their initial capital commitment\u00a02<\/sup> .<\/p>\n In other words, as long as the LP does not have sufficient assets to pay its debts following a distribution, the limited partner remains liable up to the full amount of their agreed contribution.<\/p>\n Liability Following Withdrawal or Redemption<\/b><\/p>\n A limited partner\u2019s liability does not automatically end upon withdrawal from the LP. When a limited partner transfers their interest to a third party, they remain jointly liable with the transferee toward third parties for any portion of their capital commitment that has not yet been paid\u00a03<\/sup> . In short, a limited partner who has transferred or had their shares redeemed remains liable for obligations arising from their time as a partner, with respect to third parties\u00a04<\/sup> .<\/p>\n Can a Limited Partner Be Liable Beyond the Agreed Contribution?<\/b><\/p>\n Although the general rule is that a limited partner is only liable up to their agreed contribution, certain acts or circumstances can void this protection. The Civil Code of Qu\u00e9bec<\/i> provides for three major exceptions in which a limited partner may be held liable beyond their contribution:<\/p>\n Conclusion<\/b><\/p>\n The LP offers an attractive framework for passive investors, but the limited liability it provides is subject to strict conditions. The concept of contribution is central to this protection, and its interpretation includes both funds already paid and those promised. Moreover, certain events\u2014such as profit distributions, withdrawal or redemption of units, or unauthorized involvement in management\u2014may extend or increase a limited partner\u2019s liability.<\/p>\n In a forthcoming article, we will explore in greater detail the situations where a limited partner\u2019s liability may exceed their agreed contribution, as well as precautionary measures to preserve the benefit of limited liability.<\/p>\n 1<\/sup>Code civil du Qu\u00e9bec<\/i>, RLRQ c CCQ-1991[C.c.Q.<\/i>], art. 2246. The Limited Liability of Limited Partners: A Protection to Be Nuanced One of the main appeals of the limited partnership (\u201cLP\u201d) lies in the limited liability granted to limited partners. In principle, limited partners are only liable up to the amount of their contribution to the common fund, making this structure attractive to investors who […]<\/p>\n","protected":false},"author":1,"featured_media":16678,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[159],"tags":[],"class_list":["post-16683","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-law"],"acf":[],"_links":{"self":[{"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/posts\/16683","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/comments?post=16683"}],"version-history":[{"count":5,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/posts\/16683\/revisions"}],"predecessor-version":[{"id":18040,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/posts\/16683\/revisions\/18040"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/media\/16678"}],"wp:attachment":[{"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/media?parent=16683"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/categories?post=16683"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gascon.ca\/en\/wp-json\/wp\/v2\/tags?post=16683"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nThe same principle applies when the LP redeems the limited partner\u2019s shares: the former limited partner remains liable up to the amount of their commitment, unless it can be demonstrated that, at the time of the redemption payment, the LP had sufficient assets to meet its debts.<\/p>\n\n
\n<\/i>2 <\/sup>Ibid<\/i>, art. 2242.
\n3<\/sup> Andr\u00e9 Vautour et Guillaume Lavoie, \u00ab \u00c9p\u00e9e de damocl\u00e8s ou \u00e9pouvantail ? Jusqu\u2019o\u00f9 l\u2019investisseur dans un fonds d\u2019investissement peut s\u2019impliquer dans ce fonds sans risquer de perdre sa responsabilit\u00e9 limit\u00e9e ? \u00bb D\u00e9veloppement r\u00e9cent en droit des affaires, (2016) Cowansville, Y. Blais, vol. 417 et C.cQ. Supra <\/i>note 1, art. 2246.
\n4<\/sup> Ibid<\/i>, art. 2243.
\n5<\/sup> Ibid<\/i>, art. 2197.
\n6<\/sup> Ibid<\/i>, art. 2247.
\n7<\/sup> Ibid<\/i>, art. 2246 al. 2.
\n8<\/sup> Paul Martel, Soci\u00e9t\u00e9 en commandite : l\u2019immixtion des commanditaires dans la gestion est-elle vraiment une source de responsabilit\u00e9? 2006 \u2013 La Revue du Barreau, tome 66; C.c.Q<\/i>., supra note1<\/i>, art. 2244.<\/p>\n","protected":false},"excerpt":{"rendered":"