CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Miguel Manzano, Stikeman Elliott LLP
• in a general partnership, all partners can participate in management and are subject to unlimited joint and several personal liability for the partnership’s obligations; and • in a limited partnership, partners are divided into “general” and “limited” partners, with the latter’s liability being limited to the amount of their capital contributions, on the condition that they do not participate in the management of the business of the partnership. A significant advantage of investment via a partner - ship is the tax treatment – although income and losses are calculated at the partnership level, they are taxed and deducted at the partner level. Co-Ownerships Co-ownerships, like partnerships, are not separate legal entities but constitute a contractual relationship between landowners. Income and losses pass through to the co-owners, who may claim tax deductions separately from the other co-owners. Accordingly, co- ownership agreements must be drafted to avoid the possibility of the relationship being construed as one of partnership (where, for example, each partner can bind all the other partners) rather than co-ownership. Trusts Trusts are also not separate legal entities and consti - tute a relationship whereby a person holds property as a trustee for the benefit of others. Both trustees and beneficiaries can be personally liable in connec - tion with the trust property, subject to indemnifica - tion. Additionally, publicly traded real estate invest - ment trusts have certain legislative protections in this regard. Income may be taxed at the trust or benefi - Real estate investment trusts (REITs) are available to be used in Canada, and may be publicly traded or pri - vately held. Foreign investors may invest in real estate in Canada through ownership of units in a REIT, sub - ject to the restrictions noted in 2.11 Legal Restrictions on Foreign Investors and 2.10 Taxes Applicable to a Transaction . ciary level. 5.3 REITs
The use of REITs permits individual investors to partic - ipate in real estate investment in multiple sectors with - out having direct ownership of real estate. However, income earned by a REIT is passed to the unitholders, giving investors similar investment income to that of direct ownership. An owner of real property may wish to establish a REIT as a means of attracting equity investment. There is no specific legislation governing the organi - sational structure of a REIT. Principles of contract law and trust law will govern the REIT (see 5.5 Applicable Governance Requirements ). Both publicly traded and private REITs will be subject to securities laws require - ments that will regulate the issuance and sale of units in REITs, although the sale of interests in private REITs may have additional transfer, redemption and sale restrictions. A REIT may wish to be a “mutual fund trust” under the Income Tax Act and, as such, would need to meet the requirements to qualify as such. 5.4 Minimum Capital Requirement There is no minimum capital requirement for any of the aforementioned entities. 5.5 Applicable Governance Requirements Corporations Corporations can be incorporated either federally or provincially, and are required to file articles of incor - poration. A corporation’s governance framework can be shaped by its shareholders through its articles, shareholder agreements and corporate by-laws. The articles provide basic details such as the corporation’s business name, registered office, first director(s), share capital and share provisions. By-laws are used to add to, or supplant, default provisions set out in the corporation’s governing statute. Shareholder agree - ments may regulate how shares are sold, specify pro - cedures by which important decisions are made, and provide protection for minority shareholders. Federal or provincial statutes stipulate corporate requirements such as the number and residency of the directors and fiduciary duties. Public corporations are also subject to applicable securities law requirements. Partnerships While partnership legislation may impose basic gov - ernance rules, most sophisticated parties enter into
88 CHAMBERS.COM
Powered by FlippingBook