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Select The Right Structure For Your Business

If you own or are thinking of starting a business [1] you may be considering incorporating your business.

The structure of your business is important and the appropriate help you plan for the future growth of your business.

There Are 3 Different Business

There are three main forms of business structure in Canada: A sole proprietorship, partnership, and the corporation.

The Sole Proprietor

Sole proprietorship is the simplest and easiest form of business structure.

There is no separation of the owner and the business. Business income is taxed in the hands of the owner and is included on the personal tax return of the owner. Other features of the sole proprietorship include:

The Partnership

The partnership shares many similarities to the sole proprietorship with the exception being that there is more than one owner.

In the partnership, the owners share a proportional interest in the income, expenses and assets of the business and report the income and losses on their personal income tax returns.

The Partnership Agreement

Whenever you enter into a partnership, it is advisable to have a partnership agreement drawn up.

The partnership agreement puts in writing who does what, how the interests are allocated, what to do in the event of a dispute and how the partnership will be dissolved.

Without a partnership agreement some provincial laws establish certain terms for partnerships. However, if certain conditions are not covered by law can cause problems in the event there is a dispute.

The Limited Partnership

Limited partnerships permit the partnership to bring in new limited partners, however the limited partners must not be involved in the management of the partnership to ensure they are insulated should the firm be sued of become insolvent. In the limited partnership structure, the general or principal partners have unlimited liability like the sole proprietor.

Each partner brings skills and experience to the business to benefit all of the partners. On the other hand, decision making in a partnership is made jointly.

The Corporation

A corporation is a separate legal entity and therefore separates the owners from their business. The shareholders become the owners of the corporation and are responsible for appointing the directors who are responsible for hiring managers. For many small corporations, the shareholder is both director and key manager.

The corporation issues shares to its shareholders to raise funds to begin operations and it can pay dividends to its shareholders or a salary to its owners. The issuance of shares provides a mechanism to obtain funding to establish or expand a business by offering a portion of the business of a range of investors without imposing repayment terms on the.

Advantages Of The Corporation

The benefits of incorporation include:

If certain conditions are met, the shareholders may qualify for an exemption of tax on the first $750,000 of capital gain [4] on the sale or disposition of their shares.

Disadvantages Of The Corporation

There are downsides to incorporation to be considered:

The corporate structure can be complex and may not provide a tax advantage to the owners. Incorporation is best when a business is profitable, there is and intend to pass the business on to other family members, or there is a liability concern.

We Can Help You Can Pay Less Tax

Call us today at (289) 288-1206 to email us [5] to arrange your appointment. We provide professional income tax preparation [6] and planning to help you keep more of your hard earned money.