Community Futures Meridian

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Which is the right business structure for you?

  • August 8, 2016
  • Written by Meridian Admin

There’s a lot written about the various ways you can legally set up a business. CRA has pages of information, accountant’s websites offer plentiful advice but it can all be too much. We thought it was time to have a short and simple guide to this topic to give you the basics without having your eyes glaze over.

Here’s a 90-second fake it till you make it guide!

Sole proprietorship

· It’s less of a business and more just you doing business

· You and the business are one legal entity

· The business can be your name, or you can register a business name

· It’s easy and inexpensive to set up

· It’s all your risk and legal responsibility

· All income is earned by you personally and you pay tax on it as an individual

· Expenses incurred by the proprietorship can be offset against business income to reduce tax

· If the business does well financially it could put you into a higher tax bracket, which might make incorporating more attractive.


· It’s easy and inexpensive to set up

· It’s not an incorporation

· You can have one or more partners

· Agreement can be verbal or written

· You’d be crazy to only have a verbal agreement

· There are three forms of partnership: general; limited; and limited liability

· If general each partner is liable for the unlimited debts and legal liabilities of the other

· It can be risky

· You pay tax on your share of the partnership’s net income on an annual basis

· No formality is required to form a partnership. It is automatically created at law whenever two or more persons are carrying on a business in common, with a view to profit.


· Often the safest way to set up a business, especially with other people involved

· More expensive to set up

· Requires annual filing and some other reporting to government

· Requires a more comprehensive set of books than either of the other two structures

· It’s own distinct entity – it can borrow money, own property

· You, and others, invest in the business and get shares – you become a shareholder

· Limited legal liability – but you can still be personally sued depending on the circumstances

· Limited financial liability – however, if you’re a small company with few assets banks will require you personally guarantee any loans, lines of credit etc.

· Better option if you have partners

· If there is more than one shareholder, a shareholder agreement should be in place

· You can incorporate federally or provincially (check which is best for you)

· You are personally taxed on net profits taken out of the company. That is, if you loan the company funds and later take them back out you are not taxed on this withdrawal

· The company pays anticipated corporate tax for the year in monthly or quarterly instalments (it has its own fiscal year)

· Can offer shareholders ways to reduce personal tax if the company is doing well financially

Having said all the above, deciding on the legal structure of your business is not something you should do without getting legal and accounting help, as every situation is unique. So, our first piece of advice is to read the following so you have a basic understanding of your options then go and see your lawyer and accountant and discuss which course of action is best for your business.


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