Structuring the Business
There are many ways to structure a business.They include a sole proprietorship, partnership, corporation, or a limited partnership. There are a multitude of factors that affect your decision on how to structure your business. Our lawyers can meet with you to determine the most effective business structure for you.
There are numerous advantages to incorporating a company. They include limited liability, potential tax savings, greater flexibility when bringing in new partners, more options with selling the business and the ability to implement sophisticated estate planning.
Except in very rare circumstances, a shareholder’s liability to a corporation in which they invest is limited to the amount of money they invested. Corporate directors do have somewhat more exposure to liability, however, this is still quite limited and only available in certain specific circumstances. Accordingly, a creditor of the corporation cannot collect their debt from the shareholders and directors of a corporation if the corporation is unable to pay.
If your corporation qualifies as a Canadian-controlled private corporation, you may also benefit from lower tax rates on corporate income.
Some potential disadvantages associated with running a corporation include the additional time and expense associated with filing separate corporate tax returns and fulfilling certain corporate governance obligations. Additionally, if the business does not generate sufficient profit, you may not be able to fully take advantage of the tax benefits available to a Canadian-controlled private corporation
A limited partnership consists of at least one general partner and at least one limited partner. In a limited partnership, the general partner is responsible for running the day-to-day affairs of the limited partnership and the limited partners are entitled to receive a share of the income of the limited partnership. This business structure is often used where a business person or a group of business people wish to raise money from passive investors for the purpose of pursuing a business opportunity.
All the rights and obligations of the general partner and limited partners must be set out in a Limited Partnership Agreement. In most cases, the agreements state that the liability of the limited partners is restricted to the amount of money invested in the limited partnership and the limited partners are only entitled to income as stated in the Limited Partnership Agreement.