Choose the right structure for your business
When setting up a business it's crucial to choose the structure that will best serve your objectives. In the majority of cases businesses are arranged in order to meet the requirements of tax law that treats every type of structure in a different way.
There are three kinds of legal structures used in the business:
- sole proprietorship
- partnerships (which is a type of proprietorship)
- Corporation
Each one has distinctive characteristics
1. Sole proprietorship
Sole proprietorship is a sole proprietorship is an informal entity that can be easily constructed, which is why this is the most commonly used arrangement for businesses that are starting out.
In this arrangement both the business and owner are one and the same to the authorities in the tax and legal fields. Tax law recognizes the sole proprietorship as a source of income for the proprietor , and demands that the company's financial information be included in a separate area of the tax form for personal income.
If you are a sole proprietorship the company's finances and responsibilities fall on the sole proprietor's responsibility, and the reverse is true.
This opens up a variety of options for tax management for the sole owner. If the business is able to generate an income loss, that loss could be used to decrease income earned by other avenues. This is the reason that most part-time companies have sole proprietorships.
But sole proprietorships do have one disadvantage: the sole proprietor is personally responsible for all debts and functions of the company.
2. Partnership
The term "partnership" refers to a Partnership is like a partnership, except that instead of a single proprietor, there are at least two.
Similar to the sole proprietorship model there is no legal framework for the partnership. However, the majority of partners have a contractual agreement that regulates in percent terms, the distribution of profits, expenses and other tasks.
In preparing their tax returns and filing their tax returns, the spouses apply the same percentages to their earnings and expenses.
3. Corporation
Corporate entities are more complex legal structures when compared to sole proprietorships and partnerships.
Incorporation is a procedure in which a legal entity separate from its shareholders which is controlled by its shareholders is created.
The incorporation of a company creates formal ownership shares. This results in a tax and legal separation between the corporation and its shareholders. This also provides tax benefits for the owners who usually are salaried by the company.
The incorporation of a company provides some security for debts of the corporation and provides some protection for the company's name. Shareholders and officers of the company can change their positions but the corporate entity will remain until it's wound down.
The incorporation process is usually performed under a charter within the province of origin however, some businesses who operate across several countries or provinces, or require greater credibility, should incorporate federally, which can be more expensive and complex.
Companies must maintain precise records and report their financial situation to the appropriate authorities annually. Thus the financial statements of their clients should be reviewed annually through chartered accountants.
It is easier and less costly than you may imagine.
A lot of entrepreneurs aren't keen on the idea of incorporating, at the very least not at the start of creating a company.
"Starting an enterprise takes lots of energy and time. There's plenty of information to be able to sort through, and many entrepreneurs are likely to be thinking about incorporating later. They're not yet aware of the advantages of incorporating," says Stefanie Ricchio an accountant with a charter (CPA) and the founder of the consulting company The Modern Accountant.
Laura Didyk, Vice President, Client Diversity, echoes the sentiments of Laura Didyk, Vice President, Client Diversity. "Incorporating is usually thought of as a burden on the administrative side for those who are self-employed and beginning a business, and especially women. We often think that the fastest and most convenient method is to register your name."
"However, it's not so time-consuming and complicated," claims Yasmine Chaouni, who is a manager at Corporations Canada. "If the company structure is not too complex, you can do it in less than 20 minutes," she claims.
The question of cost is often viewed as expensive it is also a myth and shouldn't be a barrier to incorporation. "Obviously, it depends on whether you want or need legal and accounting advice, but you can initially incorporate a business for as little as $200 under federal jurisdiction, with subsequent fees for extra-provincial registration which vary depending on the provinces where the business intends to carry on business" says Chaouni.
4 steps to incorporate a company in Canada
Entrepreneurs who wish to incorporate can do it via the internet on the Corporations Canada website. The following are the steps for incorporating within Canada
- Select and register the name of the corporation (company names or numbers).
- Create articles of incorporation Basic incorporation provides pre-determined articles of incorporation that may be amended later on if needed.
- Find the first address for the head office and board directors. Pick a place which you are sure you'll receive any documents sent to it because legally, it will be presumed that the documents have been received by your organization. It is also important to decide who will serve in your board of directors..
- Make sure you pay the charges.
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