Canco2, a Canadian subsidiary of a Canadian publicly traded company (Canco1), was the limited partner of two “sociétés en commandite simple” (the SCSs) formed in Côte d’Ivoire and Gabon (the Ivory Coast SCS and Gabon SCS) and controlled foreign affiliates of Canco1 were the general partners. The Uniform Act on Commercial Companies and the Economic Interest Group which governed each SCS provided inter alia that:
- a company such as an SCS was created by two or more persons agreeing to contribute to an activityfor the purpose of sharing profits or enjoying revenues therefrom;
- each company had separate legal personality from the date of registration;
- securities conferred on their holders a right to profits whenever their distribution had been determined and to the net assets of the company on its dissolution or in connection with the reduction of its capital;
- in a limited liability partnership, “general partners,” who were jointly and severally liable for the company’s debts, coexisted with one or more “limited partners” who were liable for the company debts up to the amount of their contributions; and
- a limited liability partnership was managed by all general partners, unless the articles of association or a subsequent insturment provided for the appointment of one or more managers from among the general partners.
The Directorate stated:
Generally, corporations in Canada have the following characteristics, among others:
- Legal personality …
- Limited liability of shareholders and a corporation can incur losses for which the members are not liable;
- Issuance of share capital to shareholders;
- Distributions: shareholders of a company are entitled to the division and distribution of profits after they are declared by the corporation;
- Centralization of management;
- Free transferability of interests;
- Incorporation by statute or by the registration of memorandum of association.
Generally, to qualify as a partnership under Canadian provincial law, there are three essential elements:
- a business;
- carried on in common by two or more people;
- with a view to profit.
Before finding that the SCSs were partnerships for ITA purposes, the Directorate stated:
Given that Côte d’Ivoire and Gabon are civil law systems and that Quebec is the only province that has a civil law system in Canada, it is appropriate to primarily compare the SCS to partnerships formed under the Civil Code of Quebec.
… Under Article 2219 of the Civil Code of Quebec (“CCQ”) … a partnership can conclude contracts in its own name. Article 2225 … provides that a partnership may sue and be sued under the name it declares. Article 2199 of the CCQ essentially provides that partnerships have separate patrimonies from those of their partners. Even though a general or limited partnership formed under the CCQ does not have legal personality, it has a many of the characteristics typically associated with legal personality.
A comparison of the provisions of the CCQ and the Uniform Act shows that the provisions of the two sets of legislation are very similar, except that Québec partnerships are not legal persons but SCSs have legal personality. In our view, the unlimited liability of the general partners of an SCS is an important trait that favors partnership status under the Act since the sharing of responsibility for partnership debts is a primary trait of partnerships in Canada while the limited liability of shareholders is generally a primary trait of corporations in Canada. Although legal personality is also a primary trait of corporations in Canada, we have previously stated that the existence of a separate legal personality alone is generally not sufficient to distinguish certain foreign partnerships from Canadian partnerships.