The Ontario Court of Appeal’s recent decision in Anthony v. Binscarth Holdings GP Inc. clarified limited partners’ rights to receive profit distributions under the Limited Partnerships Act.
In this case, the appellants, who were limited partners in a family-run limited partnership, sought to challenge the discretion granted to the general partner regarding the distribution of profits. The Court’s ruling has significant implications for the governance of limited partnerships in Ontario and the interpretation of statutory rights within such arrangements.
In this blog post, we explore the key issues and findings from the case and analyze the legal principles that emerged from the decision. We will also provide practical insights for commercial practitioners regarding managing limited partnerships and protecting limited partners’ rights.
At the heart of this case is a family-run limited partnership, Binscarth Holdings L.P. The appellants are limited partners in the partnership established in 2011 by their parents. The partnership’s primary purpose was to acquire and hold certain properties. As limited partners, the appellants had interests in the partnership’s profits but no involvement in its day-to-day management.
The partnership’s general partner, Binscarth Holdings GP Inc., is a corporation controlled by the Anthony Control Trust, a family trust. The trust is managed by one of the appellants’ brothers. The limited partners, including the appellants, were credited with their proportionate share of the partnership’s net income, but no cash distributions were made. Instead, the net income was allocated to their capital accounts, and the partnership only made cash distributions to cover taxes incurred by the limited partners.
In 2024, the appellants sought a declaration from the Superior Court of Justice that they were entitled to receive 100 percent of their proportionate share of the partnership’s net income on an annual basis, retroactive to 2016. They argued that the provisions of their Limited Partnership Agreement and the Limited Partnerships Act required such annual distributions and that the discretion exercised by the general partner in making distributions was inconsistent with their statutory rights.
The central legal issue, in this case, revolved around the interpretation of section 11(1) of the Limited Partnerships Act. This provision grants limited partners the right to a share of the profits of a limited partnership. However, the appellants contended that the provision mandated annual distributions of profits and that the discretionary distribution provision in the Limited Partnership Agreement, which allowed the general partner to decide whether to distribute profits, was inconsistent with the Limited Partnerships Act.
Specifically, section 11(1) of the Act states that a limited partner has the right:
The appellants argued that the word “share” in section 11(1) implied that limited partners were entitled to a share of the profits and an actual payment of that share. They further asserted that any provision in the Limited Partnership Agreement that allowed the general partner to exercise discretion in making distributions contradicted this right.
The Court of Appeal, in its judgment, firmly rejected the appellants’ interpretation of section 11(1) of the Limited Partnerships Act. The Court emphasized the mere entitlement to a share of the profits does not necessarily mean that the limited partner is entitled to a distribution of those profits. Instead, the Court distinguished between the right to share in the partnership’s profits and the actual payment of those profits.
The Court found that section 11(1) of the Limited Partnerships Act does not require that limited partners receive their share of the profits annually, nor does it mandate a cash distribution. In fact, the Court noted that limited partners are entitled to their share of the profits only upon the dissolution of the partnership, as provided in section 24 of the Act. The Court also pointed out that if the appellants’ interpretation were correct, section 24 would be redundant, as it is the section that governs the return of capital and profits upon dissolution.
Moreover, the Court found that the Limited Partnership Agreement provision granting the general partner sole discretion in making distributions was valid. This provision was negotiated and agreed upon by the parties, including the appellants, who received independent legal advice before entering into the partnership agreement.
In addition to their primary argument regarding the Limited Partnerships Act, the appellants also raised a subsidiary argument based on the Accumulations Act. The Accumulations Act restricts the accumulation of income from specific sources, including the disposition of real or personal property, and prohibits the accumulation of income beyond a certain period. The appellants argued that this statute applied to their situation and prohibited the partnership’s retention of profits.
However, the Court rejected this argument, noting that the Accumulations Act is directed toward testamentary dispositions and the settlement of trusts, not commercial activities such as limited partnerships. The Court concluded that the provisions of the Accumulations Act were not relevant to the case at hand, as it was not intended to regulate the distribution of income in a business context.
Ultimately, the Court of Appeal upheld the application judge’s decision and dismissed the appeal. The appellants’ argument that the general partner was obligated to make annual cash distributions to limited partners was rejected. The Court affirmed that the general partner had the discretion to determine when and whether to make distributions in line with the terms of the Limited Partnership Agreement.
The Court also dismissed the appellants’ subsidiary argument regarding the Accumulations Act, finding that it did not apply to the partnership’s commercial operations. As a result, the appeal was dismissed, and the respondents were awarded costs.
The ruling in Anthony v. Binscarth Holdings GP Inc. reinforces the importance of clearly defined terms in partnership agreements, particularly concerning the distribution of profits. The decision highlights several key considerations for commercial law in Ontario:
Navigating the complexities of limited partnership agreements and understanding the nuances of the Limited Partnerships Act demands seasoned legal experience. Don’t leave your partnership rights to chance. At Milosevic & Associates in Toronto, our commercial litigation lawyers are well-versed in unravelling intricate legal disputes and guiding clients toward effective, cost-efficient resolutions.
Whether you’re a limited partner seeking clarity on your distribution rights, a general partner aiming to protect your discretionary powers, or involved in a partnership dispute, we’re here to help you cut through the legal underbrush. Reach out to us at 416-916-1387 or contact us online to schedule a consultation.
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