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August 26th, 2025
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Why Ontario Limited Partnerships Are Ideal for Private Funds
Private Fund | Oct 7, 2024
Image: Freepik/vectorpouch
Ontario LPs Are a Great Option for Private Funds with Strong protection, Tax benefits, and Simplicity
This article is based on an informative Torys LLP article titled "Ontario: A Globally Favoured Jurisdiction for Private Funds". Using a private fund to pool investments and manage assets for early stage venture capital, real estate, or other financial purposes is common but how does one determine the best jurisdiction when setting up the fund?
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According to an informative Torys LLP article titled "Ontario: A Globally Favoured Jurisdiction for Private Funds", both Canadian and international funds are increasingly using an Ontario Limited Partnership (LP) as a legal framework due to it's advantages over popular jurisdictions like Delaware, the Cayman Islands, Manitoba and Quebec. Below is an overview of some important considerations for fund sponsors. Additionally, we ask ChatGPT to objectively evaluate ranks across jurisdictions for easy comparison.
Why Ontario Limited Partnerships Are Popular
Sponsors prioritize a number of goals when establishing a private fund, including safeguarding investors, reducing tax obligations, maintaining compliance, and creating an effective structure. Here are some core reasons why Ontario LPs are becoming a popular option for setup.
- In Ontario, there is strong limited liability protection given that investors who are limited partners are typically solely responsible for the obligations of the partnership up to the amount they have contributed. As long as partners do not actively participate in running the company, this rule shields them from personal liability.
- Limited partnerships in Ontario are regarded as tax-transparent, which means that the partnership does not pay taxes on its own. Rather, income is passed on to the partners, who are subject to separate taxes according to their respective tax laws and statuses. This makes it easier to manage the fund's finances and prevents double taxes.
See: Operating an investment fund in Ontario
- Ontario is a respected and stable jurisdiction due to its robust legal system. In contrast to certain tax havens like the Cayman Islands, Ontario's transparent legal and tax system complies with international norms and reduces investor reputational concerns.
- Using online filing to set up an Ontario LP is simple and typically takes less than a day. LP agreements are confidential and do not need to be made public, and there are few responsibilities for ongoing compliance.
Comparing Ontario to Other Jurisdictions
So how does Ontario's case for a private fund setup as a Limited Partnership compare with other popular jurisdictions being evaluated. On a scale from 1 (weak) to 10 (strong), each characteristic is ranked.
| Feature | Ontario (Canada) | Delaware (USA) | Cayman Islands | Manitoba (Canada) | Québec (Canada) |
|---|---|---|---|---|---|
| Limited Liability Protection | Strong protection (9) | Strong, with liability tests (8) | Strong, but potential risks (7) | Very strong, public disclosure (10) | Strong under civil law (9) |
| Tax Transparency | Tax-efficient, transparent (9) | Transparent, US tax rules (8) | Transparent in most places (9) | Similar tax treatment (9) | Transparent, similar to Ontario (9) |
| Reputation and Compliance | Stable, low scrutiny (10) | Reputable, but complex (7) | Seen as a tax haven (6) | Stable, limited recognition (8) | Reputable, with added requirements (7) |
| Disclosure Requirements | LPA private (9) | LPA private, with filings (9) | LPA private, minimal filings (9) | Public LP identification (7) | Public disclosure of key LPs (6) |
| Ease of Formation | Quick, online setup (9) | Fast, some requirements (9) | Simple but varies (8) | Straightforward (8) | Requires French name (7) |
| Ongoing Obligations | Minimal compliance (9) | Annual filings (7) | Limited compliance (8) | Public filings, changes tracked (7) | Language and disclosure requirements (6) |
| Dissolution Process | Simple process (9) | Cancellation certificate (9) | Varies, generally simple (8) | Requires public filing (8) | Formalized, additional steps (7) |
| TOTAL SCORE | 64 | 57 | 55 | 57 | 51 |
Comparative Insights and Anlysis
- Ontario offers Balance and Efficiency (64 points)
Ontario is a great option for private funds because of its effective compliance, transparent taxes, and strong limited liability protection. Because of its simple incorporation procedure and ability to avoid the reputational risks of tax havens, it is very appealing to both Canadian and international fund sponsors. - Delaware has a Strong Legal Framework but More Complex (57 points)
Delaware's strong legal system makes it a popular jurisdiction. Its liability tests are more complicated though and there are annual reports and compliance requirements that can take a lot of time.
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- Cayman Islands is Tax Efficient but has Reputational Concerns (55 points)
The Cayman Islands offers simple compliance procedures and are tax-efficient, however they are scrutinized from regulatory bodies given their reputation as a tax haven deterring some investors. - Manitoba has Strong Liability with Public Disclosure (57 points)
Manitoba scores a perfect 10 with regards to strong limited liability protections. However, not all funds that want privacy will find it perfect as it necessitates the public disclosure of limited partners and their capital contributions. While some fund sponsors/funds may benefit from increased transparency, many investors value privacy and can be put off. - Québec has Strong Legal Protections with Added Complexity (51 points)
Similar to Ontario, Québec offers strong safeguards but with extra restrictions, such as the LP must have a French name and disclosing some of its partners to the public. Although this makes it a good option for people with Québec connections, these extra complications may make Ontario a better option for those without Québec connections.
Conclusion
Ontario ranks highest with a total score of 64 striking a balance across legal, tax, and operational aspects making it the preferred jurisdiction for many fund sponsors. While Delaware and Manitoba offer similar legal protections, Ontario’s low setup compliance, positive reputation, and tax transparency give it a slight edge. Important to note the difference between setup of a private fund in Ontario versus obtaining any required operational license. Best to consult a securities lawyer.
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