Setting up a business
by Jack W. Hope
When starting a business it is necessary to decide whether
you will set up as a sole proprietorship, a partnership or
a corporation. If you choose to set up as a corporation,
you will also have to decide whether you wish to incorporate
provincially or federally. While there are no set rules
for determining which is the best forum for your business,
there are certain advantages and disadvantages to each form
of business entity.
The sole proprietorship is the simplest form of business
ownership, although it is only available if a single person
is going to own the business. It is flexible, it does
not require a lot of paperwork and is relatively inexpensive
to set up and maintain. On the other hand, the sole
proprietor is personally responsible for all of the debts
of the business and can lose his or her house, RRSP's, car,
or any other asset if the business fails.
If there are two or more persons involved in the business,
partnership is another option. A partnership is also
less expensive to set up and maintain than a corporation
and also offers the advantages of greater flexibility in
business structure and less bookkeeping and record keeping
obligations than a corporation. Once again, however,
it is important to remember that each partner is personally
responsible for all the debts of the partnership, not just
his or her share, and all the personal assets of each partner
may be available to creditors if the business fails. The
corporation offers the distinct advantage of limited liability.
A corporation is owned by its shareholders and run by its directors
and officers, who can be the same people, or even the same
single person, but it is considered a separate legal entity
from those people. Accordingly, the shareholders, directors
and officers of the corporation are not responsible for the
corporation's debts, unless they have personally guaranteed
them. There are some exceptions to this principle. For
example, if someone has been guilty of a fraud they cannot
hide behind the protection of the corporation. Another
advantage of incorporation is that you can structure your affairs,
with the assistance of your lawyer and accountant, so as to
attract less income taxes in most cases. A corporation can
be set up either through the provincial government or the federal
government. While they are both equally valid corporations
it is sometimes preferable to set up a federal corporation
if you plan to do business outside of your province. While
a provincial corporation can do business in other provinces
there are greater registration requirements and you may not
be guaranteed the use of your corporate name outside of the
province of incorporation.
To contact the author, please email jhope@smhilaw.com
The information contained in this message is general
and should not substitute for the advice and counsel of
a licensed lawyer. |
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