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Each type of ownership formation has its advantages and disadvantages, we will give a brief summary for each type of business set up. Please contact us and we will be happy to work with you to select the best set-up for your needs.
Please be advised that MMS Accounting & Bookkeeping Services is an accounting firm, WE ARE NOT LAWYERS and CANNOT GIVE LEGAL ADVICE. The information provided are intended to be used as a general guide only, for further assistance or legal information, please consult your lawyer.
With this type of business organization, you would be fully responsible for all debts and obligations related to your business and all profits would be yours alone to keep. As a sole owner of the business, a creditor can make a claim against your personal or business assets to pay off any debt.
A partnership would be a good business structure, if you want to carry on a business with a partner and you do not wish to incorporate your business. With a partnership, you would combine your financial resources with your partner into the business. You can establish the terms of your business with your partner and protect yourself in case of a disagreement or dissolution by drawing up a specific business agreement. As a partner, you would share in the profits of your business according to the terms of your agreement.
You may also be interested in a limited liability partnership (LLP) in the business. This means that you would not take part in the control or management of the business, but would be liable for debts to a specified extent only.
When establishing a partnership, you should have a partnership agreement drawn up with the assistance of a lawyer, to ensure that:
Incorporation is a process by which a corporation is formed. A corporation is defined as a business venture comprising an individual, or group of individuals, treated by the law as an individual.
The act of incorporating creates a legal entity called a corporation, commonly referred to as a “company.” A corporation has the same rights and obligations under Canadian law as a natural person. Among other things, this means it can acquire assets, go into debt, enter into contracts, sue or be sued, and even be found guilty of committing a crime. A corporation’s money and other assets belong to the corporation and not to its shareholders.
When a business is incorporated, its separate legal status, property, rights and liabilities continue to exist until the corporation is dissolved, even if one or more shareholders or directors sell their shares, die or leave the corporation.
The act of incorporation limits the liability of a corporation’s shareholders. This means that, as a general rule, the shareholders of a corporation are not responsible for its debts. If the corporation goes bankrupt, a shareholder will not lose more than his or her investment (unless the shareholder has provided personal guarantees for the corporation’s debts). Creditors also cannot sue shareholders for liabilities (debts) incurred by the corporation, even though shareholders are owners of the corporation. Note, however, that if a shareholder has another relationship with the corporation —; for example, as a director —; then he or she may, in certain circumstances, be liable for the debts of the corporation.
The Canada Business Corporations Act (CBCA) places a number of obligations and responsibilities on directors. For example, it says that directors can be held liable for certain acts or failures to act. buy Lyrica online india of this guide Organizing Your Corporation: The Directors, contains further information on the role of directors.
Because corporations are taxed separately from their owners, and the corporate tax rate is generally lower than the individual tax rate, incorporation may offer you some fiscal advantages. However, we strongly suggest that you ask a lawyer or accountant to help you assess whether incorporating might save you money.
It is often easier for corporations to raise money than it is for other forms of business. For example, while corporations have the option of issuing bonds or share certificates to investors, other types of businesses must rely solely on their own money and loans for capital. This can limit the ability of a business to expand.
Corporations are also often able to borrow money at lower rates than those paid by other types of businesses, simply because financial institutions and other sources of financing tend to see loans to corporations as less risky than those given to other forms of enterprise.
While a partnership or sole proprietorship ceases to exist upon the death of its owner(s), a corporation continues to live on even if every shareholder and director were to die. This is because, in the case of a corporation, ownership of the business would simply transfer to the shareholders’ heirs.
This assurance of continuous existence gives a corporation greater stability. This, in turn, allows the corporation to plan over a longer term, thereby helping it obtain more favorable financing.
If you decide to incorporate your business, you will have higher start-up costs than if you carry on the business as a sole proprietorship or partnership. Some of these costs are directly related to the process of setting up the corporation, while others can include professional fees paid for legal and accounting services. Although there is no requirement to obtain legal advice to incorporate, we encourage you to do so, especially if you are considering setting up a company with a complex share structure.
All federally incorporated businesses must file certain documents with Corporations Canada. Among these are:
A federally incorporated business must also:
Because a corporation is a separate legal entity that has no physical form, its activities must be carried out by individuals who have an interest in the corporation and are entitled to act on its behalf. These individuals can be divided into three categories:
1. Shareholders — These are the people who own the corporation. They make decisions by voting and passing resolutions generally at a shareholders’ meeting. Most importantly, they elect the directors of the corporation.
2. Directors — They supervise the management of the corporation’s business. A corporation must have at least one director. They are also responsible for appointing the corporation’s officers.
3. Officers — A corporation’s officers hold positions such as president, chief executive officer, secretary and chief financial officer. Although a corporation’s officers are appointed by the directors, their duties are normally set out in the by-laws. In general, officers are responsible for managing and executing the corporation’s day-to-day business.
An individual may hold more than one of these positions in a corporation. For example, the same individual may be a shareholder, a director and an officer, or even the sole shareholder, sole director and sole officer.
To decide whether to incorporate federally or provincially you should ask yourself the following questions: