Law Office of Neha Khurana particularly specialize in assisting start-up companies with their business plans, organizational structures, and corporate registrations needs.
Foremost and Critical step to Start a Business in Ontario is to determine the Business Structure which would work best for you and your business:
It may not be exciting but determining your business structure is the critical preparation step you need to take to start your business. You may be asking yourself, Is it really that important? Does it really Matter that much? THE ANSWER IS, YES!
To start a new business the foremost step is to register it. The business structure you choose determines the registration and name search types you will need to properly register your business, and if you don’t plan this properly you could end up costing yourself extra money or leave your company and yourself vulnerable.
To have a better understanding of three (3) main business structures, the advantages and disadvantages of each of these business structures for you to be better equipped to determine the business structure that is right for your business.
Business Structure Types
In Ontario there are 3 main business types: Sole Proprietorship, General Partnership and Corporation.
I. Sole Proprietorship
A sole proprietorship is the simplest form of business. The business owner, or sole proprietor, is the sole owner of the business and is solely responsible for the actions of the business. A sole proprietorship is really an extension of your person into the business world.
The Canada Revenue Agency (CRA), looks at this from an entity perspective. What this means us that you as an individual are a single entity and as a sole proprietor your business is an extension of that entity. You essentially are the business.
As with each business structure, a sole proprietorship has its owns pros and cons.
Sole Proprietorship Pros:
- Simplest form of business structure,
- Registration is fairly inexpensive,
- Lowest regulatory requirements,
- Sole Proprietor has direct control of the decision-making process,
- Potentially able to deduct business losses against personal income,
- Business profits are the owners profits and do not need to be paid out in salary or dividends.
Sole Proprietorship Cons:
- Sole Proprietor is fully liable for any debts or other business liabilities,
- Income is taxed at your personal rate,
- Less tax planning opportunities,
- Business License must be renewed every 5 years,
- Difficult to exit or sell the company,
- May be more difficult to raise capital,
- No business name protection.
II. General Partnership
A General Partnership is very similar to a Sole Proprietorship, but with multiple owners who partner together to start, build and grow the business. As with Sole Proprietorship, the business is an extension of each of the partners into the business world. The partners are the business. As a result partners share the profits of the business, as they outlined in there partnership agreement.
A General Partnership also has it’s own set of Pros and Cons.
General Partnership Pros:
- Registration is fairly inexpensive,
- Startup costs are shared by the business partners,
- Business management is shared by the partners,
- Business losses may be deductible against personal income.
General Partnership Cons:
- Partners are full liable for any liabilities or debts incurred by the business,
- Finding good business partners can be a difficult task,
- Partners may disagree on business decisions impairing the growth or direction of the business,
- As a partner, you are financially responsible for the business decisions made by your partners,
- Business License must be renewed every 5 years,
- No business name protection.
III. Corporation
Unlike Sole Proprietorships and General Partnerships, a Corporation is a separate legal entity and is legally separate from it’s shareholders/owners. Many people think of corporations as large businesses and while many large businesses are corporations this is not required to register your business as a corporation. In fact, a corporation can be an advantageous business structure whether you are starting a business yourself or with others.
Corporation Pros:
- Shareholders have limited liability,
- Ownership is more easily transferred,
- Corporations continue to exist even after the owner retires,
- Often easier to raise capital,
- Income taxed at the corporate rate,
- More tax planning opportunities,
- A level of business name protection in the jurisdiction the corporation is registered,
- Can register Operating Names, allowing the corporation to legally conduct business under various business name.
Corporation Cons:
- More regulatory requirements,
- More expensive to incorporate,
- Additional steps involved in properly setting up a corporation,
- Increased requirements for properly maintaining a corporation,
- One cannot deduct business losses against personal income.
While it is very important to try to choose the best business structure when starting a business, in order to save headaches and frustrations down the road, business structure can be changed even after a business is setup. However, since there are likely to be additional costs in transferring assets, etc. when changing the business structure of an existing business it really is best to critically think about which will best suit your business both now and in the long run in order to save the costs and focus your efforts on building your business.
Legal services in relation to businesses:
- Incorporations under Ontario (Provincial) and Canadian (Federal) law;
- Commercial agreements/contracts review and/or drafting;
- Employment contracts;
- Distributorship and Franchise Agreements;
- Franchise Business( buying or selling);
- Joint Venture Agreements;
- Loan and financing agreements;
- Partnership Agreements;
- Record keeping;
- Sale and Purchase of Business;
- Shareholders Agreements;
- AND MORE.
Law Office of Neha Khurana would be pleased to discuss your businesses needs. Feel free to call at +1(647)710-1280 or email us at info@nklaw.ca to schedule a consultation.