Canadian Business Start-up

SOLE PROPRIETORSHIP

You would be the only person who could keep any profits that were earned by the firm if it were organized in this manner, and you would be completely responsible for any obligations or liabilities that are associated to your company. A creditor may make a claim against either your personal assets or the assets of the company in order to demand payment for any obligation if you are the only owner of the firm.

Advantages:

• A sole proprietorship is simple and inexpensive to establish (you will only need to register your business name provincially, except in Newfoundland and Labrador).
• Starting a business is relatively inexpensive.
• The lowest possible regulatory burden.
• Direct decision-making authority.
• To get started, you only need a small sum of money.
• If your business is in trouble, you may be able to deduct losses from your personal income, qualify for a lower tax bracket when profits are low, and so on.
• You will receive 100% of the profits.

Disadvantages:

• Liability is unlimited (if you have business debts, personal assets would be used to pay off the debt).
• Income would be taxed at your personal rate, and if your business is successful, you may be placed in a higher tax bracket.
• Your company suffers a loss of continuity if you are unable to work.
• It is difficult to raise capital on your own.

PARTNERSHIPS

A partnership is an excellent choice for a business structure to have if you and another person want to run a business together but don’t want to incorporate your firm. When two or more individuals decide to join forces and establish a partnership, their individual financial resources will be combined and invested in the business as a whole. You and your business partner can set the bounds of your company and protect yourself in the case of a disagreement or the dissolution of the organization by drafting a specific business agreement and putting it into effect. If you were business partners, the partnership agreement would stipulate how the revenues of the company would be distributed among you based on your respective stakes in the enterprise.

In addition to this, there is the prospect of you being involved in the company through the formation of a limited liability partnership. This signifies that you would not be involved in the control or administration of the company; rather, you would only be liable for the responsibilities of the company up to a specified limit. However, you would be responsible for the liabilities of the company regardless of the amount.

You should seek the counsel of a lawyer before entering into a partnership and have that legal assist you in creating a partnership agreement. This will allow you to ensure that the following provisions are adhered to:

• You are looking out for your own best interests here.
• that you have established all of the parameters of the partnership, including how profits will be split, how it will be dissolved, and any other concerns that may arise.
• That you are in compliance with the prerequisites set forth by the law for the formation of a limited partnership (if applicable).

Advantages:

• It is simple to establish a business partnership.
• Both you and your spouse would be responsible for contributing an equal amount toward the startup fees.
• A share of equal value in the management, profits, and assets of the company.
• Tax advantages, in the event that the partnership generates a low revenue or incurs a loss (you and your partner include your share of the partnership in your individual tax return).

Disadvantages:

• In the same way that a sole proprietorship does, there is no legal distinction between you and the business you own and operate.
• Unrestricted legal liability (if you have business debts, personal assets would be used to pay off the debt).
• It is difficult to find a suitable mate.
• There is the possibility of conflict between you and your companion.
• You are financially liable for the company decisions made by your business partner (for example, contracts that are broken).

CORPORATIONS

Incorporation is an additional kind of organizational structure that companies can use for their operations. One has the option of choosing to incorporate their business at either the federal or the provincial/territorial level. When a business decides to become incorporated, it is acknowledged as a separate legal entity from its stockholders and begins to act in accordance with its very own guidelines and policies. Even if you have some ownership stake in the firm, you won’t be held personally liable for the debts, obligations, or acts of the business if you are a shareholder in a corporation and even if you have some ownership investment in the company. When faced with decisions of this sort, seeking the advice of an attorney before establishing a business is typically a smart move to do.

Advantages:

• There is limited responsibility.
• It is possible to sell or trade ownership.
• Continuous existence.
• a distinct entity for legal purposes.
• Easier to raise capital.
• Possible financial benefit in the form of reduced tax rates, which would be available to an incorporated company.

Disadvantages:

• Regulation of corporations is very stringent.
• Incorporating a business incurs higher costs than operating as a sole proprietorship or partnership.
• Comprehensive corporate records are necessary, and this includes minutes from shareholder and director meetings as well as paperwork submitted annually to the government.
• There is the potential for confrontation between shareholders and directors.
• There may be an issue with the directors’ places of residence.