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?
- Should you incorporate provincially, or federally?
- 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/