31 August 1990 Income Tax Severed Letter AC59691 - Continuation of a Partnership -- summary under Disposition

An Alberta general partnership (comprised of two Canadian corporations and owning and managing Canadian real estate) will be continued to a U.S. state as a limited partnership in order to admit some individual U.S. investors as limited partners. Would their admission or the change in law result in a dissolution of the partnership and a deemed disposition of the partnership interests by the partners? Revenue Canada responded:

In general, the conversion of a general partnership to a limited partnership does not result in a disposition of the partnership interests of the general partners who become limited partners provided:

1. there has been no significant change in the rights and obligations of the partners other that the decrease in the potential liability of the general partners who become limited partners and the increase in the potential liability of the general partners who remain as such; and
2. the law governing the partnership does not operate to cause a dissolution of the general partnership, when there is a conversion to a limited partnership.

Significant changes in any of the following areas upon conversion to a limited partnership may result in a disposition of the partnership interests:

1. the contributed capital accounts of any of the partners;
2. the percentage interest in the partnership of any of the partners;
3. the number or identity of the partners;
4. the business of the partnership; or
5. the percentage interest of each partner in the profits; or
6. the percentage liability for losses of each partner, except for the limitation on liability of the limited partners.

In addition to the above, we would need to determine whether the applicable provincial law resulted in dissolution upon the continuation of the partnership in a foreign jurisdiction.