CANADA Law and Practice Contributed by: Rachel V Hutton, Michael L Dyck, Mario Paura and Patrick Morin, Stikeman Elliott LLP
and/or statute. Under Canadian law, there are two principal types of partnership – “general” and “limited”: • 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 manage - ment of the business of the partnership. A significant advantage of investment via a part - nership is the tax treatment – although income and losses are calculated at the partnership lev - el, they are taxed and deducted at the partner level. Co-ownerships Co-ownerships, like partnerships, are not sepa - rate 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 agree - ments 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 constitute a relationship whereby a person holds property as a trustee for the benefit of others. Both trustees and beneficiaries can be person - ally liable in connection with the trust property, subject to indemnification. Additionally, publicly traded real estate investment trusts have certain
legislative protections in this regard. Income may be taxed at the trust or beneficiary level. 5.3 REITs Real estate investment trusts (REITs) are avail - able to be used in Canada, and may be publicly traded or privately held. Foreign investors may invest in real estate in Canada through owner - ship of units in a REIT, subject to the restric - tions noted in 2.11 Legal Restrictions on For- eign Investors and 2.10 Taxes Applicable to a Transaction . The use of REITs permits individual investors to participate in real estate investment in multiple sectors without having direct ownership of real estate. However, income earned by a REIT is passed to the unitholders, giving investors simi - lar investment income to that of direct owner - ship. 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 organisational structure of a REIT. Principles of contract law and trust law will govern the REIT (see 5.5 Applicable Governance Require- ments ). Both publicly traded and private REITs will be subject to securities laws requirements 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 require - ments to qualify as such. 5.4 Minimum Capital Requirement There is no minimum capital requirement for any of the aforementioned entities.
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