Determining Your Type of Business:
There are a few areas of business you can operate under. Pre-determining what type of business you want to start is very important.
Sole Proprietorship
This is the most common business practice out there. A sole proprietorship is owned by one person, you. You are the head master of the company. Many sole proprietorships are operated under the business owners name. This is also the least expensive way to start a business.
As soon as you engage in commercial activity, you become a sole proprietorship. You may operate as a sole proprietor with no extra costs but some professions require a certain legal license of permit to do business with. For instance, if you wanted to operate as a plumber, you'll need your plumbing certificate to operate as a business.
Advantages Of A Sole Proprietorship:
- You can start doing business right away
- It is inexpensive way of doing business
- You may have employees working for you
- All the business benefits belong to you personally
- Your business profits are your profits
- Business losses may reduce your income tax
- No costs to stop your sole proprietorship
Disadvantages:
- All the obligations belong to you
- Your business liability is unlimited
- You can employ others but not yourself
- Certain types of business arrangements cannot be carried out
- When you stop doing business, so does your business
Partnerships:
Partnerships are carried out by one or more people(s). This type of business refers to the relationship between two of more persons who carry on business together in order to make profit. There are 2 types of partnerships:
- General Partnership
- Limited Partnership (limits liability to certain of the partners)
Advantages Of A "General" Partnership:
- You can start right away
- It's relatively inexpensive
- You can have employees
- all benefits belong to the partnership
- The income is distributed to the partners
Disadvantages:
- Any partner is legally bonded to the others actions and liabilities
- All obligations belong to the partnership
- Your liability is unlimited
- A partnership cannot employ any of the partners
- The Partners are subject to tax
- Dissolving a partnership is not always easy to do
Advantages Of A "Limited" Partnership:
- Limited partners liability is also limited
- Limited partners can simply be passive partners
- The option to have employees
- Potential tax benefits
Disadvantages:
- Setting up a limited partnership is very time consuming
- You must remain passive at all times, no matter what
- Limited partnerships need to be renewed every few years
- Lack of access to certain types of funding
- Difficult to dissolve a limited partnership
Corporations:
A corporation or company, as it is called in certain jurisdictions, is a legal entity, created by statute, that is used to carry on a business and exists separate in law from it's owners. By incorporating, you bring that legal entity into existence. (Definition of a corporation taken from the "Canadian Legal Guide For Small Buisness".)
Advantages Of A Corporation:
- Receive personal protection from all liabilities
- Limited liability with maximum flexibility
- Potential personal tax benefits
- Option of employment with your own company
- Multiple business names
- Potential corporate tax benefits
- Transfer of business to others (family / co-workers)
Disadvantages:
- Incure several expenses to operate a corporation
- Must create annual documentation
- Potential Liability
- Difficult to close a corporation
Now onto...
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