The Death of a Limited Partner
Earlier this year, the Ontario Court of Appeal considered the issue of an estate’s entitlement to the residual assets of a partnership upon the death of its sole limited partner.
Canadian Home Publishers Inc. v. Parker, 2019 ONCA 314, is a lawsuit between the general partner and the Estate Trustees of the deceased limited partner, David. Canadian Home Publishers Inc. was incorporated when Lynda and David decided to purchase Canadian House and Home magazine in 1985. Lynda and David were married at the time. The corporation was owned by Lynda as the sole general partner and by David as the sole limited partner. It was their intention that Lynda would run the company as her own business and David would make use of its tax losses.
The couple later divorced in 1991. Litigation ensued and there was a previous decision about the nature of the parties’ oral partnership agreement in the ’90s. David dies in 2012. By the time of his death, David had received over $26 million from his interest as the limited partner. The magazine itself was valued at over $50 million. Lynda, as the general partner, sought a declaration that 1) the limited partnership was dissolved upon David’s death, and 2) that David’s Estate was only entitled to a share of the profits to the date of his death and a repayment of his remaining capital contribution (i.e. that the Estate was not entitled to share in the residual value of Canadian Home Publishers).
The lower court found that 1) the limited partnership was indeed dissolved upon David’s death and 2) that David’s Estate was entitled to an equal share of the residual value of Canadian Home Publishers with Lynda. While the Court of Appeal upheld the finding that the limited partnership was dissolved on death, the second finding was overturned and the Estate was limited from any additional benefit over above its share in profits as of the date of death and a return of capital.
The Court’s analysis provides a helpful description of the differences between limited partnerships and ordinary partnerships. A limited partner is meant to be a passive investor whose exposure to liability is limited to the extent of his or her capital contribution unless otherwise provided in the Limited Partnerships Act (see paras. 20-21). A limited partner has no broader right to participate in the upside of the limited partnership, just as the limited partner has no broader obligation to suffer or contribute in the downside (para. 25).
Since we are talking about House & Home, here is a recipe from their website for pineapple honey ribs 🙂
Thanks for reading and until next time!