At some point, you have probably asked yourself “Should I incorporate my real estate investing business?”
And if you have ever seen or posed that question on a real estate forum the chances are there were almost as many answers as there were people responding.
Even though most of those responses were not coming from informed professionals, some may have given the simple answer “It depends!”
The more nuanced and expert answer is what you will hear from our two experts at this month's virtual REITE Focus event.
George Dube from accounting and tax firm BDO Canada and Ryan Carson of Carson Law share their insights and knowledge from a legal and tax perspective, along with other considerations.
Daniel: We have Mr. George Dube, who is a chartered professional accountant, author, speaker, and veteran real estate investor. You can see that by the gray in his beard. George is the leader for the real estate and construction industry in central Canada, at BDO Canada, LLP. He has written and contributed to articles in various national and regional publications and co authored two books.
George also enjoys balancing and customizing his life with his family. Of course, if you made George and said his name is George, and he's not wearing a bow tie, check his driver's license because for 12 years now that I've seen George, he is always able to type, but then again, I don't golf with him. Maybe when you golf, you don't wear both. And of course the other experts here on the left, on your screen. As I go a little bit more, cause I'm always looking at your picture, which has all the red, and now look at that and all that whites here that comes from too much work.
You're referred to as the fearless leader of the Carson Law team. You established a firm in 2013. You grow the net from one lawyer to now there are two companies working together with 20 people combined, and you're running all that. Somebody has mentioned, they think of you as the philosopher of the company, because you always talk about finding the perfect work-life balance and which you personally pursue by filling time outside the office with golf, hockey, baseball, family. And whatever beats you can find.
You and I will have a conversation because we have eight houses now being built in Costa Rica. Maybe we have a beast for you though somewhere. Tonight again, talking about the GP and LP structure and this is really important. Think about this as the foundation for your house. I don't care how nice you are in the house. I don't care how nice the finishings are. I don't care how many pot lights you have in your kitchen.
If you build it on sand, it's not going to be worth much 10, 15 years down the road. How you structure your deal, how you structure your business is absolutely key. I will retreat with my coffee and Irish cream. Did I say that out loud with my coffee? And then let you guys take over and please tell us what we should know about that.
George: Thank you everybody. We're going to talk about one way, you can see a part of a series here in terms of structuring our real estate investing business. In particular tonight, we're going to talk about setting up a GP/LP structure. We're not trying to say that this is for everybody. We're not trying to say everybody needs to set one up now, but I think it may surprise a lot of people even if they're not looking to set something of this nature up today. Maybe it's something that they should be hiring for the next year or two or a little bit further down the road.
I guess we've already had expert introductions for Ryan and I, so we'll start off. Ryan and I are just going to banter a little bit back and forth. There'll be some parts that are a little bit more legal oriented and some that are more tax oriented, but as earlier mentioned, a lot of these things are very closely connected. And hence, we thought a great idea to talk together about this, the general partner limited partnerships. We'll go through some reasons why we might want that and I'll let Ryan kick it off there.
Ryan: Thanks, George. As George said, general partnership, limited partnership structure, why would you want? and why?. The first point there talks about legal protections for the limited partners. As the name suggests the investment parties into this kind of structure, get to limit their liability through the partnership agreement, to just the funds they're putting in.
Not that anybody wants to lose any of their capital investment. But it is a possible risk whenever you're doing anything that you could lose your investment. But in this case, with a limited general partnership structure, the limited partners, which as well as you'll see, as we talk further into the evening here the limited partners are in fact essentially hands-off capital only investors.
The GP, the general partner, is going to be the one that's active. They're going to be managing or through a management company, managing the projects, meaning trades dealing with law firms, accountants. They're doing all of the sweat equity and all the work in the structure. And the partnership is limited, partners are essentially. Almost always passive hands-off investment only. For example, if I was a limited partner in a million dollar fund of 10 limited partners, and we all put in a hundred thousand even then the worst thing that would happen would be, I would lose my investment of a hundred thousand, but I'd be limited to that.
The general partner, unfortunately, has some sort of general and infinite liability, depending on the other terms of the partnership agreement. The second point, and then I can always flip back over to you George is it's easier for the GPLP structure to consistently and constantly bring in investment and especially as it would relate to probably larger projects. This isn't to say that you couldn't do a GPLP structure versus smaller projects, like smaller size, wind development or smaller just real estate investment opportunities like duplexes and those sorts of things. But as we talk about this later into the evening as well, you'll probably see it. It doesn't make a lot of sense to use a GP/LP structure for that.
GP/LP structures as George and I have probably both seen relate to your larger apartment complex on acquisitions land development opportunities, potentially land and building opportunities. But they're definitely typically used with larger size projects especially where you may need to go and get a larger pool of investors and or be looking at larger dollar figures basically as well.
It's easier to just consistently bring people into a fund which is the partnership structure as opposed to trying to do it with one or two like big fish on a JV agreement or one or two or three corporate shareholder investors. That's where the GP/LP stretched from me. Someone beneficial too is on larger projects.
George: I agree a hundred percent and it doesn't necessarily mean terms of a large project. It doesn't need to be a $50 million acquisition by any means, but we're also not talking about a million dollars either. I've certainly seen them for a few million dollars even in the $5 million era, even less but often. We'll see as we proceed along, as Ryan said that there's a fair bit involved in, but once we have perhaps almost a template set up in many ways, at least for the bulk of a structure, then it's a lot easier to repeat in future projects.
A lot of people will go to invest into that from a tax and a legal perspective. As examples, take care of financing, get the program into place. It's a rent and repeat. You see the comment, the limited partners aren't typically providing financing guarantees. I'm not going to say that's always the case. It certainly , from my observations, an exceptionally frequent case, but I'm sure there's contrary examples and that's another reason why people tend to see or invest. And now P structure is typically, they're going to be if using a corporate structure as a shareholder required to guarantee some mortgages.
In terms of the next comment there, you'll see a flow through. What we're referencing here is in many cases, a wealthy investor will be chatting with a tax advisor, an investment advisor, and they liked the idea rightly or wrongly. I'm not necessarily as middly as big of a fan to this particular component, although I still get what I want in a slightly different way, but the limited partnership itself is not taxed. It's the owners of the limited partnership units that receive the tax. And so a lot of people like the fact that income flows through the limited partnership directly to the owner. And the owner pays whatever tax is applicable to their particular situation as compared to sharing a tax situation with all the other investors.
Ryan has really touched on the pooling of funds to take on those larger projects. If we have that ability to bring in larger investors that are attracted to different concepts with the limited partnership, then clearly we can tackle larger projects and pool those funds. The last point there is to say, and again, not to say that everybody's going to want to have a private read in the future.
It is more tax efficient and easier to convert from a GP/LP structure into that private REIT. In fact, that private read is really just adding a component on top of what we're all called the structure. Again today, we may not be interested in that private REIT, but perhaps we're interested in setting up 2, 3, 5 limited partnerships over the next few years and then consider, but not be required to convert to that private REIT structure.
It's something that can be more efficient and allows us to scale up even further than we might otherwise be doing. I think you're riding and you're going to go through some of the parts. And after this there's a couple of slides here. We'll see a little bit more graphically. What we're referring here to Ryan, I guess I'll let you take this off here.
Ryan: Basically, with the elements of a GP/LP structure and you'll see this, like in the slide, as it progresses on, I think it and it can take on lots of different variations, generally speaking, you've got to have a limited partnership agreement. That's an actual contractual document that gets put together by hopefully the lawyers that you're working with, but there'll be a limited partnership agreement that has to be put together.
There's usually several corporations. If they're already not preexisting, there'll be several corporations that need to take part in the GP/LP structure as well. Those various different corporations sometimes can satisfy different purposes. And then depending on obviously some of the other structures, as you'll see in some later slides, there could be some elements of family trust and so forth.
In the limited partnership agreement itself this is typically where you see the rule book or the term. In which the general partner which would probably be all you guys on the call, like presumably all of you would be interested in creating this kind of structure from the standpoint of being a general partner as active real estate investors here. This limited partnership is where basically spell out for all the interested, limited partners, what are all the rules of this venture? How do you buy in, what's your minimum amount? What's the term? What's the scope of the project of the partnership?
It's also going to talk about, as George said, are you truly limited only to your capital investment? Or is it possible that you could be on the hook for a joint or several guarantees and other liabilities? It's this agreement's going to talk about how the parties might have to be requested to provide additional capital in the future.
What happens if you do where you don't put your capital in? It would also of course, talk about how you get out of the partnership and what the process is in that regard. And then it typically also gives the waterfall or the cascade effect of what's the sequence and the order in which payment is made out of the GP/LP structure to the general partners or the limited partners.
The limited partnership agreement is really the foundational legal document that outlines who the general partner is, but also how they interact with and how they manage, supervise and are involved with all the limited partners.
George: The base part then, as you can tell, starts off with the limited partnership itself and that's where the investors are putting their money effectively and not just the other investors, but perhaps the founders themselves will often as well put some money in. People can see they have some skin in the game at that point in time. The general partner, then this is what the founders are going to own. Practically speaking, control what's going on with, as a result of that limited partnership agreement that Ryan was speaking of.
The general partner is going to usually own like a fraction of 1% of the limited partnership itself. The investors in turn will own practically speaking the entire partnership. You can see it here. The next part is optional. At times, Ryan and I will see the general partner used in isolation without a nominee corporation. But at times we want to have a nominee corporation and as I understand it, it's more actually from a legal perspective, there's completely zero tax advantage to having a nominee corporation.
Often I'll see it, or it may often be the wrong word. From my experience, I've probably seen about half of the structures that we create, certainly in the structure that I'll be creating and putting together for myself. If you will, I will have the nominee corporation. I'd like to have that flexibility with future land transfer taxes, potentially to be able to do a slightly different agreement down the road to make everybody better off.
Ryan mentioned we're going to have different optional entities and we'll see a potentially a management fee operating company. Some organization or entity that is going to be able to charge the limited partnership, for example, an acquisition fee financing fees normal management of the properties or the development or whatever may be going on. This can help us isolate activity away from the general partner. And often we may want to do that for tax and legal reasons.
I'd mentioned this flow through the capacity of limited partnership with the founders. They actually want to have their investment taxed inside of a corporation as compared to personal ownership or directly through a family trust as an example, or another partnership, the bulk of clients that I'm working for will use that investment holding company.
Not that it's right for everybody. Just I'm sure partly in terms of what I prefer, but as well looking at the investors or the founders in this example overall tax situation to gauge what's best. I would suggest that's not necessarily a requirement. Admittedly remember seeing a limited partnership set up without the founders putting in a little bit anyway.
Family trust. Ryan's already referenced this. It may be appropriate. It may not be appropriate. A beneficiary company, it's optional. There can be some real advantages from a tax and a legal perspective, reasons for setting this up. It's something you're going to want to sit down with the advisors and go through. I'm sure most people at this point, if they're not familiar with limited partnership setups, they're probably getting overwhelmed.
I think rather than try to memorize or understand every little point it's to say. There are a lot of options. There's customization that could be done in your structure. That's why someone like Ryan myself is available to help customize what's written in your situation. To keep in mind, you may start off with a relatively basic GP/LP structure and over time, add in more elements to it. This is optional, the other investment holding company, and it may be holding other assets, maybe how to have a stock portfolio, the second mortgages insurance planning, it can be all sorts of different things. Not always required often benefits. But usually not on day one.
I think this will be our last one, if I'm not mistaken, but the idea of a second family trust, that's more for what I'm going to call pure income splitting with securities. And you can see here again, it's not for everybody, but if it's something that can be used. Depending on how many kids that are available or low-income family members it's possible to save roughly $30,000 a year. It was such an add on to the structure. Nothing to sneeze over my personal opinion.
The prescribed rate loans are not per se an element of the structure in the sense of an entity. It's something that starts to hold together. Some of the aspects of this. That very simple structure. I've just outlined here where we've got the general partner and that's a corporation. I have no idea why, but lawyers and accountants like to use rectangles for corporations and ovals for partnerships.
We can see here that it can be very simple and not much fuss about it. Alternatively, we can start to add in a more advanced structure where you can see at the top there's two triangles that represent family trusts, and that the family trusts may be an internal beneficiary company, that management company. An actual investment company, the nominee corporations at the bottom there and off to the side is my family trust dealing with the TOSI or rules, which are rules that restrict splitting income with family members.
We're not suggesting everybody needs this on day one, but it's something to give a little bit more flavor to some of the possibilities. I got one more slide than I've definitely handed it over to Ryan here for a moment. Typical tax implication. I've mentioned the flow through concept that limited partnership itself is not taxed. Rather, the unit holders are going to be taxed on their allocated portions of the profits or losses.
A benefit of that can prevent a double tax. It's typical of a structure that has subsidiary corporations, for example. You can see here that the nature of the income for different entities and what I mean by that is depending how complex you make the structure. Then some of the income's going to be taxed with active income, which is typically going to be taxed lower than passive income from an income tax perspective. We can start to really carve out different profits from the limited partnership and give them different tax implications. I'll leave it at that for now. Oh yeah. Ryan.
Ryan: No problem, George. Just so everybody knows, it's not always the lawyer who talks the most. I've been told that. Everybody, that's really great quality stuff that George is giving you. As George said, a lot of you depending on how much you already know, or actually used GP/LP structures. Obviously, this can sound quite a bit overwhelming, maybe a bit foreign, maybe a big Greek as you would. I know people have been asking some questions in the chat. George, I've been responding to quite a few of them. Feel free while I'm here hammering on here to look at them as well.
I think that the basic thing here is out of all, if there were three main structured vehicles for you as real estate investors. I guess the fourth one could be the most simple of all of them, which is you just do it by yourself, you just acquire and own and do everything all by yourself. But obviously one strategy. Many of you are working on utilizing or have been for many years if you try to allow yourself as a real estate investor. To have other people's funds assist you in all your acquisitions and your projects.
You're not actually putting yourself out there as strenuously with all your funds and you're using other people's money to leverage. The project from your standpoint, but also give people return on their investments. The three most common structures everybody's probably heard of joint ventures. They're probably your least expensive and most applicable to a lot of small to medium projects. They can be used on very large projects as well.
I think they couldn't be, but predominantly people do a lot of joint ventures on smaller projects, smaller maybe in property size, duplex is up to five units. But also maybe smaller in a dollar value as well. You might be talking a million and a half down. Whereas, then you get into corporate structure and you might just have a corporation or to acquire the property. You could potentially have people just acquire shares in the corporation and the corporation actively works on the actual projects and so forth.
You'd have a bit more costs there, both with George and with myself because you're setting up a corporation. You're setting up a shareholder agreement and potentially whatever else might come along, George would have extra. You'd have a corporate tax return that becomes a filing requirement annually.
Now, you start to see some of your costs increase because you went from the most simple and straightforward joint venture platform to this corporate platform that now has a startup opinion from your lawyer and accountant. Which is the same as the joint venture, but now add to it, the annual requirement of doing a corporate tax return on top of like personal tax returns. The last one obviously is this GP/LP structure, which as you can see from George's simple illustration to his more complex one. You could have a couple corporations in a partnership agreement, which is obviously more than the other examples I just gave as far as legal work is concerned and tax opinion is concerned.
If there's several corporations, it means you have several corporate tax returns as opposed to one. And of course if you add in trusts and so forth as well. They have returns as well that George would have to review and prepare and file. This slide, I say all this to you because this slide that we've got up on the screen talks about, how do you cost this? Like why are the costs potentially for the GP/LP structure, the largest when you compare it to the other models that I just briefly highlighted and it's the complexity of just having so many legal documents and or legal entities like corporations and trusts to create.
As George is like more complex illustration showed, there's a lot of things that are taking place behind the scenes. That advice/ opinion that you're getting from your tax advisor is obviously complex. They're trying to make sure it's the best for you in the medium and your long-term goals.
Just the complexity of the GP/LP makes the costs go up. Other things that unnecessarily maybe drive the cost up is when you haven't finalized the terms of the partnership agreement. Like you come to George and I, and you're still trying to hammer out the partnership agreement terms, or if it's back and forth between the different parties involved back in, obviously significantly drive it up because you're paying for people's time to review the changes back and forth over and over.
It's best to really try, especially if you're controlling the partnership terms because you are going to be the general partner. It's best to get that all squared away in your mind of what you want to offer the public. The limited partners because most of the time I think George would agree with me here. Lot of limited partners, the investors going into a GP/LP, don't typically get to negotiate too many terms of the partnership agreement.
Read it, know what it says, know where you've got some exposure costs and so forth, and then you sign or not invest in it or not. But the back and forth on the partnership agreement if I think I understand what George and I were thinking about there it's as the general partners want to have that kind of squared away ahead of time, so that you're not instructing through your accountant and lawyer, and we're doing multiple variations of a partnership agreement just between you, the general partners. That will keep your costs down. If you're pretty squared on that.
Changing minds on structuring. Obviously, a lot of the structure will probably be driven quite a bit by the tax side. I always kinda say to my clients, it's really important to work with a tax accountant that really understands real estate investing and likes where you are and where you want to go. I know that's always one of George's big goals is yes, understanding where you are right now, but where you want to try to get to because the structure that you put in place for the now could be grossly under-serving where you want to go in the future.
Obviously, you don't want to do everything all in one shot because that might not make sense either, but he tries to make sure that you've got a good, flexible, structured so that you can accomplish those future goals and not have to worry about a lot of costs while you're doing that along the way. But if you are speaking with say George, and he gives you a toxic opinion and you choose structure and then all of a sudden a week or so later you decide, nah, I'm going to go with structure C instead. That's going to drive costs out because now that might mean that George had to tweak again to get the structure.
See, then I got a tweak if I've already started my part of it. Again, a bit of changing your mind on structure not being complete on terms. These are all things that are going to unnecessarily increase your costs in this kind of structure set up. George, do you want to talk about some of the other ones there? Since I was just rambling.
George: I think people can see. There's a lot of things that can affect that, but a lot of it is changing our minds or the structure, things of that nature. The more robust the structure, the more unique the deal, the more people are wanting to sit through, have meetings. And again, I'm always afraid of that quick phone call because I have very few quick phone calls and you can probably tell once I talk a lot that I like to take the clients to talk to. But it's to be cautious. In the interest of time here, I'm gonna flip over but hopefully that gives an idea of what's starting to drive some of the costs from a bookkeeping perspective.
I won't go through in detail here, but the aspect of, okay, we're in a different game here having our shoe box and trying to do things at the end of the year. That's not going to cut it. Your investors are not going to be impressed. The requirements for depending on again, how sophisticated things are for quarterly statements may be there. There are requirements for distribution of information essentially 90 days after the year end to get to the investors.
You do not have time to figure out your bookkeeping after the fact that beyond all the reasons you should have a good bookkeeping system. You're going to have some very upset folks. If they haven't received their basic tax information from you relating to the partnership, that means their tax returns might be late. And certainly their accountants won't be thrilled with that as well. And I think you touched on this a fair bit there, Ryan. Is there anything else you want to mention?
Ryan: The purpose of the shareholder partnership agreement. I think we did, you're right to talk about it. If I like sports, I'll give you a sports analogy. It's the rule book. It's the rules of the game here. The partnership agrees who has what roles, who has the ability to make decisions. It says what people can and they can't do. And then it also talks about if you do something you're not supposed to do, what are the consequences of that? What are the obligations? To speak on parties if there's issues, but the partnership agreement is the foundational legal document to the whole GP/LP structure.
George: This is one of the potential ad-ons that might be applicable and I won't go through in detail, but there is certainly a present, separate presentation. You can link to a video discussion of the concept, but the basic idea is using other people's money to pay for your taxes and a lot of it's geared to the idea of retirement succession planning, no question, but it can also be more immediate. I gave the example here of a cottage or paying off personal mortgage where I know it sounds too good to be true, but properly done.
There's definitely some ways to properly do it. You can essentially truly get a financial institution to happily pay for your taxes and do so without it coming, at least entirely. There's a small portion, but the bulk of it comes out of not your pocket but somebody else's where they happily do that. It's a little different for sure. I do encourage people to take a look and see whether or not that sounds like it may be of interest to them. Quite honestly, I'm finding exceptionally few people don't have an interest in the concept.
Family trust consideration. Ryan and I have referenced us in terms of why somebody may be putting it into place. And again, there's a separate video. They're more discussing the tax side, admittedly, as compared to the legal reason for why you might want to have a family trust and some real quick reasons though, or actually, I guess we should just describe what a family trust is. And so in layman's terms, from my perspective, feel free to correct me. I would describe it as a mechanism where we have a stereotypical example, the ability for mom and dad to control assets and control income.
They don't actually own it. And that in and of itself can provide various legal and tax benefits for the family trust, not that a family trust again is for everybody. And not that a family trust is for everybody on day one, but more and more of our clients that as they're scaling up are finding that the family trust is a key part of what they're doing and can be a way. Particularly when combined with the using other people's money to pay for taxes, the IFA planning, it can be a way of really sheltering those taxes that would be owed on.
A stereotypical situation. If there's a husband and wife, when the second of them passes away, All of their assets are deemed to have been sold for fair market value. It was an extremely rough number. You may be giving away 25% of your estate to the government. There's ways of significantly reducing that by using some of the planning that Ryan and I are describing here.
In conclusion, I think you can tell Ryan and I are trying to say that while not for everybody. I think more and more people should be considering and perhaps not today, maybe it's for some future projects or as you're scouting opportunities to say, oh yeah, you don't think you can do it, but actually maybe you can do it with a little bit of a different stress.
Start to have some of these out on opportunities. You'll see here that these aren't necessarily just for sending up a GP/LP. In other words, the vast majority of family trusts that Ryan and I work with aren't even remotely involved with them. GP/LP they may just own what I'm gonna call a normal real estate holding company. Take a look at the income splitting opportunities.
I've called the TOSI friendly trust. That's not a technical term by any means. Just I find it a little bit easier in terms of talking with people about that. If that's the way of saving 30 grand a year for you, maybe you should give it some thought Ryan. I'll let you take the last couple of points there.
Ryan: As George said, the GP/LP, as I've seen it used, is not necessarily for everybody right out of the gate per se. I really like it for some seasoned investors, especially ones that are doing medium to larger projects. I think it's very beneficial. When people ask me about the GP/LP, I like to tell people as well. It's a great opportunity to not necessarily have even a specific fund for a specific project, but you can have an open fund.
We'll target and go after particular project types. If you're quite good at raising capital, it allows you to consistently on the one hand raise funds and capital while you're shopping for your projects. Because if you're exceptionally good at raising capital, the one thing that's hard to do out there sometimes, especially depending on how the market is.
Sometimes it's hard to find these deals; they're highly competitive, especially some of these larger projects. I think the GP/LP in conclusion from my point of view is really good for specific projects, but it can also be really great for the investor who is quite good. The capital raised side of real estate investing and wants to make sure that they're not stifled or delayed as they go project to project and then need to find the money once they have the project.
This gives you a way of running your business with two streams of capital raising on one side and acquisition opportunities on the other, so hopefully if they're balancing together. You're never going to run into a situation of having to wait or get stalled or get a little nervous that I've got this really great deal and I made a commitment to it, but now I'm a bit worried that I'm not going to find the funding for it.
I think it's a great opportunity for that kind of investor, which probably is somebody who's a bit more serious and or experienced in season, but it could also be somebody right out of the gate. It just depends on everybody's particular situation.
George: Of course please don't try this at home without qualified advice. It can be financially very painful.
Francois: Thank you so much, guys. That was really informative. I saw quite a few questions in the chat as well, but it looks like most have been answered, but maybe we can review some of them again, live or because I'd say most were answered in the chat. Some were quite interesting about, again, GP/LP structure. Is it more of a long-term play for some corporations? You keep them for a shorter term. This is a longer term investment.
George: You're seeing mixes really weird. The LPs themselves can have short term ownership, projections with properties. It could be they're flipping properties and they can certainly have properties that they hope they're going to own for a hundred years. It's more, I would suggest I liked the concept or describing it to people as, and again, I'm using my own situation, but I think many people can relate to this.
If you're trying to approach investors in some cases, it's nice to have a bit of a smorgasbord. And by that, I think Ryan referenced a particular geographic area that you're focusing on or a particular type of product or a particular exit strategy for things of that nature that allow maybe I've got a chunk of money, but I don't want to put it all into the same project. I want to sprinkle it a little bit, and this allows me that opportunity, or to ensure that I don't have so many various projects into one limited partnership that I scare away people.
For example, George May not be interested in a short-term hold or a short-term rental, Airbnb VRBO type of thing. On the other hand, maybe that's where he wants to put all of his money. The limited partnership itself, I've just seen in quite a variety of investment places.
Francois: That's very good, very interesting. I saw some questions about the US and great answers. If you don't do really cross border legal planning, George, I think though on your team, you have some cross border partners that can assist with some, maybe not the legal side, but the accounting side.
George: On the tax and accounting side. We won't have the legal folks for that, of course. But I, myself, won't pretend to be knowledgeable in the ins and outs of setting up those structures, but certainly my partner is and I rely on him when working with clients that are getting into the US and we probably have that discussion with at least a couple of clients every few months in terms of the pros and cons of doing that. My partners have definitely set up these types of structures where we do go into the US or other countries, but I won't pretend to be the experts specifically in that field.
Ryan: The question is, does the supply in the US for real estate investing? I'm sure. If it's not identical, they probably have very similar structures from the GP/LP framework for us and maybe even, outside North America. I just can't give you the advice on it, but I'm sure at the end of the day the simple answer, the general answer is yes, you can do this kind of stretch for structure for US investments in probably foreign investments as well. I know there's lots of people in the group who are investing in Costa Rica for example, and so forth.
George: One of the big differences probably is just to say the structures that they'll use for US investors are different for Canadian investors. A Canadian investor getting into an investment structure meant for an American resident investor. They will often find themselves, whether they know it or not insignificant, the double tax problem areas, which they're not going to be appreciative of once they dig into things.
Francois: It varies a lot by state. Some states have different tax levels. Some states have no corporate taxes. Lots of fun, lots of challenges. It's 50 different countries.
George: We just have a few new questions. One from Jerry, can investors' liability be properly protected within a well-worded joint venture agreement. And that's for Ryan.
Ryan: For sure, whatever structure you're doing, the liability and risk of the investors, whether they're being active or passive investors in the different projects. We'll all be scripted by whatever's in your legal documents. Whether you're doing a joint venture agreement structure, whether you're doing something corporately and everybody's combining to be shareholders. Maybe some are voting and some are non-voting shareholders, or you're involved in this general partnership limited partnership structure and fund which would be the partnership.
At the end of the day joint venture shareholder agreement, partnership agreement, it's completely possible obviously to limit people's liabilities or on the flip side, broaden people's liabilities as well. I'll give you an example like George and I will be talking about GP/LP here. As George alluded to, and I would agree with them most of the time. I think I even said this already: most limited partners, the investor, the passive party in the GP/LP component are typically limited only to like their investment.
I gave the example, you've got a million dollar fund you're asking for every 10 limited partners. They all invest a hundred thousand each. If the wording was such in the partnership agreement, it would say those limited partners, the worst they can do is lose their hundred thousand.
However, I just reviewed a much larger general partnership. The ask of this fund was actually 200 million. It was a very large construction project for five condo towers and the limited partners in that case. Although the primary, like exposure to them in liability is their investment minimum of a hundred thousand.
They do, depending on the board of directors and then managing the entity of the partnership. They could be on the hook for joint and several liabilities and guarantees of the partnership. There is a way for them to be exposed additionally to whatever they put in. But again, that's contained within the partnership itself, that discloses that.
Francois: It's still some major words of caution there. We have a few more questions while we got a comment from August regarding US versus Canada. You were saying the same thing in the US. Luke is asking, does the structure change if all of the GP/LP is Canadian based, but with international investors.
George: The structure does change. One of the idiosyncrasies maybe of a partnership or a limited partnership is that in most of those agreements, there's going to be a very explicit paragraph. At least one. I often describe it as one to say that all the investors are providing reps and warranties that they are not. A non-resident of Canada.
Where there are non-resident funds, there needs to be an intermediary and investment entity. That the limited partnership itself is not what I'm going to call tainted. That's not per se technical. But they're not tainted by that. Non-resident who can then unfortunately, in some cases, although it's usually not administered this way, technically could result in taxes on all the Canadian residents that they're not going to be happy with. As a result of having one non resident investor.
Francois: Very interesting. You create this whole thing of some kind that separates things and then the money is that Canadian?
George: It can be Canadianized in some context with just a simple Canadian holding company. Often go, particularly as people scale up, it may be a reason to get into the private REIT where there's not the same requirements. Not that it can be completely foreign, but it's possible to start putting some non-resident money into that, but the majority still needs to be Canadian resident and one that I'm working on now for actually a couple of different ones. Let's cap it at 45% because you don't want to hit 50. One was capping it at 40% just to try and leave some buffer there that it doesn't blow up on everybody accidentally.
That's not a nice surprise. I wanted to share as well, specified IFAs, Immediate Financing Agreement or Arrangement. Somebody was wondering about that. And that's great. Thank you very much then.
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