Angelo Discepola, Robert Nearing, "A Reply to the CRA's Classification of Florida and Delaware LLLPs and LLPs as Corporations", 2016 Conference Report (Canadian Tax Foundation), 24:1-39

General characteristics of LLPs (p. 24:13)

In broad terms, LLPs are fundamentally general partnerships and defined as such under LLP legislation. Provided that the general partnership has complied with the registration requirements of the relevant jurisdiction, attached to this specific type of general partnership is the above-mentioned liability shield, which essentially overrides the joint and several liability for general partnership debts and obligations at common law. As explained in greater detail below, the extent of this shield is dependent on the state in which an LLP is created and generally only partially relieves partners from personal liability for the negligence or misconduct of their counterparts, and not for their own misconduct or ordinary-course obligations of the partnership (such an entity is commonly referred to as a "partial-shield LLP")….

[S]ome states have preserved the original partial liability enacted by the Texas legislature, while others (most notably Florida and Delaware) have adopted or migrated toward full-shield legislation. In addition, each state has in some form or other imitated Texas's original registration requirements to allow the partners of a general partnership to benefit from LLP status….

General characteristics of LLLPs (p. 24:15-16)

US LLLPs are lesser-known entities than US LLPs. Also born of the Texas legislature, LLLPs, unlike LLPs (which are fundamentally general partnerships), are limited partnerships at their core. LLLPs are formed when limited partnerships follow a registration process similar to the process followed by general partnerships that elect to become LLPs….

[D]elaware soon imitated Texas, which amended its partnership legislation to allow limited partnerships to register as LLLPs. In both states, LLLPs were designed to offer a shield from liability to both general partners and limited partners….Not all states extend this protection to limited partners, however. For example, Colorado's legislation does not extend its LLP shield to limited partners of LLLPs beyond the protection given to them under traditional partnership law. Accordingly, limited partners appear to have no shield from liability if they become involved in the management of the partnership's business for example.

General comparison of attributes of LLP/LLLPs and Cdn corps (p. 24:17)

1) LLLPs and LLPs are created by a contract between two or more people for the purpose of carrying on business with a view to profit;

2) LLLPs and LLPs can be dissolved by contract;3) partners of LLLPs and LLPs are considered to be agents of the partnership;

4) partners of LLLPs and LLPs share in the profits and losses of the partnership;

5) partners of LLLPs and LLPs can only transfer their economic interests in the partnership;

6) partners of LLLPs and LLPs manage the business of the partnership;

7) partners of LLLPs and LLPs owe each other and the partnership a duty of loyalty and care;

8) LLLPs and LLPs have a separate legal personality; and

9) partners of LLLPs and LLPs (including general partners in the case of LLLPs) are not responsible for obligations of the partnership, whether arising in contract, tort, or otherwise solely by reason of being partners of the partnership.

Each of the attributes described in items (1) to (7) are attributes that are unique to LLLPs and LLPs, and are not shared by Canadian corporations:

1) corporations are created by statute, can be created by one person, and need not have a profit-making purpose;

2) corporations are dissolved by statute;

3) shareholders are not agents of corporations;

4) shareholders are not entitled to the profits of a corporation; rather, their only entitlement is to dividends as and when declared by the board of directors;

5) shares can be freely transferred;

6) shareholders generally do not have a right to manage the business of a corporation in the absence of a unanimous shareholders' agreement; and

7) shareholders do not owe each other any mutual (loyalty) duties and are entitled to exercise their rights (typically voting right) as they please, without regard to the interests of other shareholders.

It follows that separate legal existence and limited liability are the only features common to both Canadian corporations and LLPs/LLLPs.

More on non-assignability of full partner status and duty of loyalty for LLP/LLLPs (pp. 24:26)

Partners of both Florida and Delaware LLLPs/LLPs and Canadian partnerships are generally entitled only to transfer their economic interests in the partnership (their entitlement to share in the profits and losses of the partnership). [fn 93: Section 15-502 of DRUPA, section 620.8502 of FRUPA, and section 21(1) of the OPA] An assignee of a partnership interest (unless he or she becomes a substitute partner) does not therefore step into the shoes of the assignor (for example, with respect, to voting rights and the inspection of partnership accounts).…

Shares of a CBCA corporation are entirely different…

Partners of LLPs owe each other and the partnership a duty of loyalty and care….

The CBCA, however, does not provide for any such fiduciary duty, either among shareholders or between shareholders and the corporation….

Implicit treatment by Interpretation Act of LLP/LLLPs as not being corporations (p. 24:28)

[S]ection 35 of the Interpretation Act…supports partnership treatment of LLLPs and LLPs. The IA definition provides that the word "corporation" "does not include a partnership that is considered to be separate legal entity under provincial law."… [T]he better view is that the IA definition confirms that a partnership that is considered to be a separate legal entity should nevertheless be considered to be a partnership. …

[T]here is a strong argument that the IA definition applies for greater certainty to ensure that LLLPs and LLPs are not treated as corporations. Further, the phrase "a partnership which is considered to be a separate legal entity under provincial law" does not necessarily limit the application of the IA definition to partnerships governed by provincial law. On the contrary, the IA definition arguably applies when provincial private international law requires foreign law to be taken into account in considering the treatment of a foreign partnership that is a separate legal entity. [fn 106: See Gerling Global …. v. Canadian Occidental…, 1998 ABQB 714. In this case, the court indicated that Alberta's conflict-of-law rules …required that it look to Delaware law to determine whether a Delaware partnership was a "legal entity" under Alberta law….]

Relevance and extent of limited liability (pp. 24:29 – 32)

[O]PA LLPs are also full-shield LLPs [fn 107: Section 10(2) of the OPA] and the CRA has to date treated these LLPs as partnerships for Canadian tax purposes.

It is not clear why the CRA chose to make the issue of limited liability the decisive point in treating LLLPs and LLPs as corporations for the purposes of the Act, particularly in light of the fact that there are no other meaningful distinctions between these entities and Canadian partnerships, except for separate legal existence…

[A] partner of an LLP may waive protection from liability under DRUPA to the extent that is provided in the partnership agreement [fn 108: Section 15-306€ of DRUPA.] The protection from liability may also be waived when partners expressly accept personal liability for some or all partnership obligations by agreeing to guarantees with respect to specific liabilities of the partnership. The CRA has not stated whether LLLPs or LLPs whose partners have executed these guarantees or waivers (with the corresponding effects on their liability) ought to be treated as partnerships for Canadian tax purposes.

[T]he wording in partial-shield jurisdictions departs somewhat from the full-shield language contained in section 15-306(c) of DRUPA by specifically stating that the liability shield severs the link between the partner and the partnership only with respect to obligations of the partnership arising in connection with negligent acts….

The CRA has not yet stated whether it will treat partial-shield US LLPs as partnerships for Canadian tax purposes.

[A] general partner of and LLLP (like a partner of a full-shield LLP) remains liable for its tortious actions….

Thus, if a general partner of an LLLP is culpable of tortious conduct toward third parties in the execution of its duties as the manager of the LLLP's business, the general partner is not protected by the LLLP shield. In other words, it should not be assumed that a general partner of an LLLP is shielded from all possible claims arising in connection with the management of an LLLP. In our view, the weight given to the LLLP shield (which, as noted, is in substance the LLP shield) by the CRA should therefore be tempered accordingly. …

[T]he liability shield afforded to LLLPs and LLPs arises by filing the documents required for the entity to be treated as an LLLP or LLP and paying the applicable fees. The failure to file any required annual filings or to pay the applicable annual fees may result in the loss of the limited liability shield. [fn 111: Section 15-1003(c) and (d) of DRUPA.] By contrast, corporate limited liability is intrinsic to a corporation…

Scottish partnership tests (p. 24:32)

[I]n Dollar Land (Cumbernauld) Ltd. v. CIN Properties Ltd. [fn 115: 1996 SLT 186.] the Scottish Outer House listed five factors as hallmarks of a partnership relationship:

1) mutual agency,

2) participation in profits,

3) sharing of losses,

4) common capital, and

5) the basic non-assignability of the partnership relation.

Again, joint liability for debts and obligations was not listed as an essential attribute of a partnership. Each of the foregoing five attributes are common to LLLPs and LLPs, however.