Two related taxable Canadian corporations (CanGP and CanLP) were the general and limited partner, respectively, of a Limited Liability Limited Partnership (“Delaware-LLLP “) that had been constituted by filing a certificate with the Delaware Secretary of State. Under the Delaware Revised Uniform Limited Partnership Act (“DRULPA”):
- an LLLP is a separate legal entity that has a perpetual duration;
- Limited Partners (and subject to the Partnership Agreement) the General Partners;
- each General Partner is an agent of the LLLP for the purposes of the LLLP’s activities;
- profits and Losses of an LLLP shall generally be allocated among the Partners on the basis of the value of their contributions, subject to another method provided in the Partnership Agreement; and
- it may be continued into another jurisdiction, converted into another type of listed entity, or merged with other such entities.
The Partnership Agreement contained the agreement of CanGP and CanLP respecting the maintaining of capital accounts and sharing of profits and losses, stipulated CanGP’s exclusive management responsibility and authority and provided for a Board of Managers to provide overall guidance to CanGP, and specified the “Liquidating Events,” which did not include a predetermined date.
Delaware-LLLP disposed of all of its assets, used the proceeds received principally to terminate services contracts, and was subsequently dissolved, with CanGP and CanLP claiming capital losses. The Tax Services Office reassessed, with the reassessments being buttressed by a secondary position that Delaware-LLLP should be considered as a corporation.
The Directorate indicated that, consistently with 2016-0642051C6, a Delaware LLLP generally should be considered as a corporation given “the existence of a separate legal personality that is recognized under the DRULPA – meaning the full legal capacity to acquire and own property, to sue and be sued, to carry on their own activities and to incur liabilities of their own – and the limitation of liability afforded to all of its members.” However, in light of the transitional relief being afforded to Delaware LLLPs so that, in the taxation years involved, Delaware LLLPs would be considered as a “partnership for the purposes of the application of the Act to CanGP and CanLP’s XXXX…” it was suggested that the secondary position be dropped so as “to be consistent with the intended treatment of other taxpayer files being considered.”