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How should you set up your business? Part 3: What is “the Corporation”

In Part 1 and 2 of this series I discussed “the sole proprietorship” and “the partnership” in greater detail. I took a look at the strengths and weaknesses of each business structure, along with various things to consider when deciding which structure is best suited for your business.

In this third and final part of the series, I am going to explore “the corporation” in greater detail. I will discuss what a corporation is, and set out some of its pros and cons that you may want to consider when deciding whether a corporation is a suitable structure for your business.

What is a corporation?

A corporation is an entity that has a separate legal existence from its ‘owners’, the shareholders. A corporation can own property, carry on business and be liable for the obligations that it incurs. A corporation will have three distinct parties: directors, officers and shareholders who will all have different roles and responsibilities within the corporation.

What are the “pros” of a corporation?

  • A corporation is considered a separate legal entity, which means that a shareholder’s liability is limited through what is referred to as the ‘corporate veil’. If this is compared to a sole proprietorship or partnership, where the business and personal assets of a sole proprietor or partner can be seized to fulfill an obligation, this is an attractive quality of a corporation.
  • Potential tax perks i.e. the Small Business Deduction (please contact your accountant for further information).

What are the “cons” of a corporation?

  • Higher initial start- up costs, and more complex set-up procedures.
  • More cumbersome and expensive to maintain. For example, a corporation is required to file an annual corporate tax return.
  • The limited liability of shareholders and directors via the ‘corporate veil’ can be penetrated in certain circumstances.

Should you decide that a corporation is the right structure for your business, what are some other things you might want to consider?

  1. Should you incorporate provincially, or federally?
  2. What should be considered when appointing directors and officers to the corporation?

 

Disclaimer: A solicitor-client relationship is not established by viewing this article and will not be established until confirmed by the solicitor and client in writing. This article is not legal advice but legal information only, and cannot be relied upon for its completeness. If you have specific questions contact a lawyer in your jurisdiction. 

Jennifer Wilowski is a lawyer licenced to practice law in the province of Ontario. She is a Partner and co-founder at Anton & Wilowski LLP, a general practice boutique law firm in Mississauga, Ontario. Her main areas of practice include Corporate Law, Real Estate Law, Wills & Estates Law, Civil Litigation and Cannabis Law.

Connect with Jennifer:

Website: https://www.antonwilowski.ca/

LinkedIn: https://www.linkedin.com/in/jennifer-wilowski-183817181/

 

 

How should you set up your business? Part 2: What is “the Partnership”

In Part 1 of this series, I briefly discussed the three ways that a business can be structured (sole proprietorship, partnership or corporation). I then took a closer look at the sole proprietorship in greater detail and set out some of its strengths and weaknesses.

In this second part of this series, I am going to further explore “the partnership”. I will discuss what constitutes a partnership, as well as set out some of the pros and cons of a partnership that you may want to consider when deciding whether a partnership is the right structure for your business.

A partnership is constituted when two or more individuals carry on business together with a view to profit. There are three types of partnerships currently recognized in Ontario, those being:

  • General Partnerships (GP);
  • Limited Partnerships (LP); and
  • Limited Liability Partnerships (LLP).

What is the difference between these three types of partnerships?

In a general partnership, each partner’s liability for the obligations of the partnership is unlimited, whereas in a limited partnership that liability may be limited to the amount that the partner has contributed to the business. A limited liability partnership is a cross between a general partnership and a limited partnership; each partner is only liable for their own negligence.

What are the “pros” of a partnership?

  • Initial start-up costs are low.
  • Fairly simple way to set up your business with few legal formalities.
  • You can share in the responsibility of running the partnership business while maintaining limited liability in limited partnerships and limited liability partnerships.
  • The business’ capital losses can be used to offset the business’ capital gains (please contact your accountant for further information).

What are the “cons” of a partnership?

  • Your business is not its own legal entity. Thus, the business and personal assets of a partner may be seized to satisfy a liability of the partnership. For example, if you own real property i.e. a house, and your business has incurred debt, your house can be seized to fulfill that business debt obligation.
  • There is a risk of conflict amongst the partners regarding the management of the business itself.

Should you decide that a partnership is the right structure for your business, what are some other things you might want to consider?

  1. What terms should you include is your Partnership Agreement?
  2. How should you structure the partnership itself?

Stay tuned for the third and final part of this series where I will explore “the corporation” in further detail.

Disclaimer: A solicitor-client relationship is not established by viewing this article and will not be established until confirmed by the solicitor and client in writing. This article is not legal advice but legal information only, and cannot be relied upon for its completeness. If you have specific questions contact a lawyer in your jurisdiction. 

Jennifer Wilowski is a lawyer licenced to practice law in the province of Ontario. She is a Partner and co-founder at Anton & Wilowski LLP, a general practice boutique law firm in Mississauga, Ontario. Her main areas of practice include Corporate Law, Real Estate Law, Wills & Estates Law, Civil Litigation and Cannabis Law.

Connect with Jennifer:

Website: https://www.antonwilowski.ca/

LinkedIn: https://www.linkedin.com/in/jennifer-wilowski-183817181/

How should you set up your business? Part 1: The Sole Proprietorship

You’ve decided to take the “next step” in your career and start your own business. You likely have lots of ideas flowing, but before those ideas can become a reality you will first need to figure out how you’re going to structure your business “on paper”.

What does this mean, how are you going to do this, and where do you start?

With all the excitement of opening your own business, figuring out the structure of the business is an often overlooked and understated step of the process. Ensuring that you understand your options and the implications of each option is important because it may not only save you time and money down the road, but it will also ensure that your business starts off on the right foot.

This three-part series will explore the ways that you can structure your business, as well as provide some general information on each option.

The three ways you can structure your business are as follows:

  • Sole proprietorship
  • Partnership
  • Corporation

Let’s take a closer look at the sole proprietorship.

A sole proprietorship is the most basic way that you can set up your business. A sole proprietorship is formed when an individual carries on business for their own account, and no other parties are involved. Essentially, a sole proprietor will own and control the business by themselves. This does not mean that a sole proprietor cannot hire employees, this just means that the sole proprietor is the only individual at the helm of the business.

What are the “pros” of a sole proprietorship?

  • Initial start-up costs are low.
  • Fairly simple way to set up your business with few legal formalities.
  • Capital losses can be offset against capital gains for tax purposes (please contact your accountant for further information).

What are the “cons” of a sole proprietorship?

The main “con” of a sole proprietorship is that your business is not its own legal entity, thus, the sole proprietor does not have “limited liability”. What does this mean? If the sole proprietor has certain business liabilities, their business and personal assets can be seized to satisfy those liabilities.

Should you decide that a sole proprietorship is the right structure for your business, what are some other things you might want to consider?

  • Does your sole proprietorship require a licence to carry on a specific activity?
  • Is the name of your business compliant with the relevant legislation?

Stay tuned for part two of this three-part series where I will explore “the Partnership” in further detail.

Disclaimer: A solicitor-client relationship is not established by viewing this article and will not be established until confirmed by the solicitor and client in writing. This article is not legal advice but legal information only and cannot be relied upon for its completeness. If you have specific questions, please contact a lawyer in your jurisdiction. 

 

Jennifer Wilowski is a lawyer licenced to practice law in the province of Ontario. She is a Partner and co-founder at Anton & Wilowski LLP, a general practice boutique law firm located in Mississauga, Ontario. Her main areas of practice include Corporate Law, Real Estate Law, Wills & Estates Law, Civil Litigation and Cannabis Law. Jennifer is not your traditional lawyer; she is committed to redefining the delivery of legal services and takes a modern, transparent and holistic approach to the practice of law.

Connect with Jennifer:

Website: https://www.antonwilowski.ca/

LinkedIn: https://www.linkedin.com/in/jennifer-wilowski-183817181/

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