What Is an LLP in Canada? Meaning, Rules and Who Can Form One

An LLP (limited liability partnership) is a partnership in which partners are not personally liable for partnership debts or other partners' negligence just because they are partners, though each stays liable for their own negligence. In most Canadian provinces, only regulated professionals such as lawyers and accountants can form one. British Columbia lets any partnership register as an LLP.

What does LLP mean?

LLP stands for limited liability partnership. The letters "LLP" at the end of a firm name, or the French forms "SRL" or "SENCRL", tell clients and creditors that the partners have a statutory liability shield. Without that shield, partners in an ordinary general partnership are personally liable for all partnership debts, including debts caused by another partner's mistakes.

An LLP is still a partnership. It is formed by an agreement between two or more partners who carry on business together for profit, and then registered with the provincial registry as an LLP. It is not a corporation and, under Canadian partnership law, it is not a legal person separate from its partners. The CRA treats a partnership as a separate person for GST/HST only.

Who can form an LLP in Canada?

This is the point most guides get wrong. Each province decides who may use the LLP form, and most limit it to professions whose governing legislation allows it.

So a consulting firm, software company or online store can be an LLP only in British Columbia. If you are not a regulated professional and you're outside BC, look at a corporation or a limited partnership instead. Non-residents have the same choice. Our guide to LLPs for non-residents covers the BC route in detail.

How does LLP liability protection work?

The shield is real but narrower than many people think. Using BC's Partnership Act as the example:

What is protected

• A partner is not personally liable for a partnership obligation merely because they are a partner (s. 104(1)).
• A partner is not personally liable for another partner's or an employee's negligence, unless the partner knew about it and didn't take reasonable steps to prevent it (s. 104(2)).

What is not protected

• Your own negligence or wrongful acts. Each partner stays fully liable for their own conduct.
• Partnership property. Your share of the firm's assets is still available to the firm's creditors (s. 104(3)).
• Director-type liabilities. Partners are liable wherever a corporate director would be for the same obligation (s. 105).
• Debts from before registration as an LLP (s. 106).
• Personal guarantees you sign for a lease, loan or line of credit.

An LLP partner is not "liable only up to their investment". That describes a limited partner in a limited partnership, which is a different structure.

LLP vs LP vs general partnership: what's the difference?

The LLP's selling point is that every partner can manage the firm and still keep a liability shield. In an LP, investors are protected only if they stay passive; if that suits you, you can register a limited partnership instead. Read our limited partnership guide and general partnership guide for the details.

How is an LLP taxed in Canada?

An LLP is a flow-through for income tax. The partnership itself doesn't pay income tax. Its income is calculated at the partnership level and allocated to the partners, who report their share on their own returns: individuals on a T1, corporate partners on a T2. That avoids a second layer of corporate tax, but it also means partners can't leave profits in the business at a low corporate rate.

The partnership may have to file a T5013 Partnership Information Return, for example if at the end of its fiscal period its absolute revenues plus absolute expenses are more than $2 million or its assets are more than $5 million, or if other CRA conditions apply. Partnerships with non-resident partners face extra withholding rules. Get advice from an accountant before you choose the structure.

How do you register an LLP?

The steps depend on the province. In general:

1. Confirm you're eligible. Outside BC, check that your profession's governing Act and regulator allow LLPs, and meet any regulator conditions such as professional liability insurance.
2. Sign a written partnership agreement. It should cover capital, profit sharing, management, admission and withdrawal of partners, and dissolution.
3. Choose and clear the name. The name must end with "LLP", "Limited Liability Partnership" or an approved French form. In BC, get a Name Request approved first ($30, reserved for 56 days).
4. File the registration. In BC, file a registration statement with BC Registries naming a registered office in BC. In Ontario, the firm name is registered under the Business Names Act; the government fee for registering a partnership or LLP name is $60.
5. Notify existing clients that the firm is now an LLP, as BC requires (s. 107), and update letterhead, contracts and invoices.
6. Keep it in good standing. In BC, file an annual report within two months after each anniversary of registration and file amendments when details change.

We prepare and file LLP registrations, including the BC registered office for out-of-province partners. See our LLP registration service.

Is an LLP right for your business?

An LLP makes sense when:

• You are a regulated professional, such as a lawyer or accountant, and your regulator permits LLPs.
• Or you are in BC, want a partnership in which everyone manages, and want protection from each other's mistakes.
• Partners are happy to be taxed personally on all the firm's profits each year.

A corporation is usually the better fit when you want a separate legal entity, limited liability for every owner, the small business tax rate on retained profits, or outside investors. Many professionals who can't use an LLP incorporate a professional corporation instead.