Ontario Superior Court rules limited partners cannot cause partnership to make cash distributions

Law360 Canada (November 25, 2024, 1:11 PM EST) --

Jonathan Zepp

Matthew McGuigan

Parties contemplating the formation of a limited partnership in Ontario should consider the implications of a recent decision by the Ontario Superior Court of Justice in Anthony v. Binscarth Holdings GP Inc., [2024] O.J. No. 1580. The court in Anthony considered limited partners’ entitlement to annual cash distributions, and specifically, their ability to cause the general partner to pay such distributions. The court’s analysis provides the following key insights which prospective limited partners and general partners alike should consider when negotiating limited partnership agreements:

1. Limited partners should be cognizant that they are not entitled under the Limited Partnerships Act to cash distributions of the partnership’s profit, absent a contractual term to that effect.
2. In a similar vein, general partners should be cognizant that there is no requirement under the Act to provide cash distributions to limited partners. So long as the partnership credits the limited partners’ capital accounts with each limited partners’ proportionate share of profits, the absence of cash distributions is not a violation of the Act.

Anthony v. Binscarth Holdings GP Inc., [2024] O.J. No. 1580

In Anthony, certain limited partners of Binscarth Holdings L.P. applied for a declaration that they were entitled to receive payment of 100 per cent of their proportionate share of the partnership income on an annual basis by way of cash distribution. The partnership was governed by a limited partnership agreement, which included provisions providing the general partner with absolute discretion with respect to distributions of cash and partnership assets. The limited partnership agreement contained only one provision restricting such discretion, s. 8.1(b), which required a minimum distribution to the limited partners for the purpose of covering their taxes payable on account of their proportionate allocation of partnership income.

The court found that the limited partnership agreement was sufficiently clear that the general partner had “sole discretion” with respect to distributions and therefore, the Applicants had no entitlement to cause the general partner to make such distributions.

The court’s reasoning

The applicants’ primary argument was that s.11(1) of the Act required the partnership to distribute all partnership profits to the limited partners each year. The applicants acknowledged that the limited partnership agreement did not mandate distributions of net profits, other than those required to cover taxes payable, but argued that this omission was in contravention of s.11(1) of the Act.


In considering this argument, the court analyzed s. 11(1) of the Act, which states:

            11 (1) A limited partner has, subject to this Act, the right,

(a) to a share of the profits or other compensation by way of income; and

(b) to have the limited partner’s contribution to the limited partnership returned.

The court stated that the Applicants’ interpretation of s. 11(1)(a) was an argument that the words “a limited partner has … the right, to a share of the profits …” are synonymous with “a limited partner has … the right, to a distribution of the limited partner’s share of the profits …” The court disagreed with this equivalency, finding that the mandate found in s. 11(1) is satisfied by crediting the limited partners’ capital account with their proportionate share of the partnership’s income.  

The court’s conclusion was further supported by the following arguments:

1. Throughout the Act, distributions are referenced as “payments to limited partners.” Therefore, the court concluded that if section 11(1) was referring to distributions, the Legislature would have used the term “payments.”
2. Section 24 of the Act discusses the existence of accumulated profits in the limited partners’ capital accounts. The court noted that such accumulations would not be possible under the Applicants’ argument that they were entitled to annual cash distributions of all partnership income.
3. A requirement that the partnership provide annual cash distributions of all partnership income would conflict with other provisions of the limited partnership agreement dealing with additional investment by the partnership.

Ultimately, the court rejected the applicants’ argument, finding that there was no requirement under the Act for the partnership to make annual cash distributions; therefore, the discretion provided to the general partner in the limited partnership agreement was not in contravention of the Act. The court nonetheless found that such a requirement could be provided for in the limited partnership agreement itself, such as the requirement under s. 8.1(b) to provide minimum distributions for the purpose of covering taxes payable by the partners

Key takeaways

Those purporting to enter into a limited partnership agreement should be sure to consider Anthony when negotiating provisions with respect to cash distributions. Specifically:

1. Limited partners should understand that there is no legislative requirement that a limited partnership make cash distributions of partnership income. Therefore, limited partners concerned with obtaining distributions should negotiate a term in the agreement either requiring distributions or providing the limited partners with the ability to cause the general partner to make such distributions.
2. General partners should understand that the partnership is under no obligation to provide cash distributions under the Act and limited partners cannot cause such distributions under the Act. Finally, general partners should recognize that provisions providing them with absolute discretion with respect to distributions are not in contravention of the Act and will thus be enforced by the courts.

Author’s note

The applicants have appealed the court’s decision to the Ontario Court of Appeal. A date is not yet set for the hearing. Upon the release of the appellate decision, we will update you accordingly.

Jonathan Zepp is a managing partner at Robins Appleby LLP. Matthew McGuigan is an associate at Robins Appleby LLP. Zepp and McGuigan both work in the firm’s business & transactions group, regularly advising general partners and limited partners with respect to limited partnership matters.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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