Choosing the Right Business Structure

Do you know which business structure you want to choose?

It depends on many factors and there are no simple rules for selecting which will be right for your business.

Some questions to consider include:

• How many people are involved with the business?
• Are there outside investors?
• Do you have any personal assets you wish to keep separate from the business?
• Do you want to limit your liability?
• How much profit is the business expected to generate?
• How much do you wish as a salary?
• Will you be re-investing profits in the business, or do you want to take all profits as personal salary?
• What is your budget for registration?
• Are you prepared to pay the additional accounting fees required by corporations?

SOLE PROPRIETORSHIP, PARTNERSHIP & CORPORATION?

Before registering your business, consider the different legal business structures: Sole Proprietorship, Partnership, and Corporation. Each structure has different and important implications for liability, taxation, and succession. If you are unsure, contact a lawyer or accountant. Please note that sole proprietorship and partnership names have no statutory name protection. If name protection is important to you, you may wish to incorporate your business or to register for a trademark at the Canadian Intellectual Property Office.

SOLE PROPRIETORSHIP

Starting a sole proprietorship is the simplest way to set up a business. The sole proprietor is said to be self-employed. As a sole proprietor you would be fully responsible for all debts and obligations related to your business. A creditor with a claim against a sole proprietor would normally have a right against the sole proprietor’s assets, whether business or personal. This is known as unlimited liability. As a sole proprietor, you perform all the functions required for the successful operation of the business. These include: Securing the capital, Establishing and operating the business, Assuming all risks and Accepting all profits and losses.

Business Registration is available with a Business Advisor at BACD.

• A Master Business License for a Sole Proprietorship or Partnership can be obtained with a business advisor. The Service Fee is $30 + HST or you can register their own using this article

GENERAL PARTNERSHIP

A partnership is an agreement in which you and one or more people combine resources in a business with a view to making a profit. In a General Partnership, you and one or more other owners would share the management of a business, and each partner would be personally liable for all debts and obligations incurred. This means that each partner is responsible for, and must assume, the consequences of the actions of the other partner(s).

In order to establish the terms of the Partnership and to protect yourself in the event of a disagreement or dissolution of a Partnership, a partnership agreement should be drawn up. You would share in the profits according to the terms of the partnership agreement.

INCORPORATION

A corporation, also known as a limited company, is a legal entity that is separate and distinct from its members (shareholders). Companies are incorporated in Ontario according to the provisions of the Business Corporations Act. When a company is incorporated, it acquires all of the powers of an individual, an independent existence – separate and distinct from its shareholders, and an unlimited life expectancy. An Incorporated company can acquire assets, go into debt, enter into contracts, sue or be sued.

Ownership interests in a corporation are usually easily changed. Shares may be transferred without affecting the corporation’s existence or continued operation. The following characteristics distinguish a corporation from a partnership or sole proprietorship: Limited Liability: normally no member can be held personally liable for the debts, obligations or acts of the corporation beyond the amount of share capital the members has subscribed. Each shareholder has limited liability. A creditor with a claim against the assets of the company would normally have no rights against its shareholders, although in certain circumstances shareholders may be held liable. We recommend that you seek professional legal advice. Perpetual Succession: because the corporation is a separate legal entity, its existence does not depend on the continued membership of any of its members.

Business Registration is available with a Business Advisor at BACD.

• Registering a Corporation can be done through a Business Advisor (using OWNR, service fee is $125+HST in addition to the OWNR/Corp registration fees), or by themselves using this article or with our Legal Referral Partners. *Conditions apply.