Choosing a Legal Structure for your Business

Which legal structure is right for your business?

Each form of business ownership has advantages and disadvantages that should be considered before choosing a legal structure for your business.

Sole Proprietorship

A sole proprietorship is a business owned and operated by one individual.

Advantages

  • It is inexpensive to register your business as a sole proprietorship in Ontario.
  • It only has to be renewed every five years.
  • Operating as a sole proprietorship means you own 100% of the business.

Disadvantages

  • You are legally responsible for the business; it is considered an extension of yourself.
  • You are personally responsible for any debts and liabilities your business incurred.
  • Your personal assets can be seized and used t o discharge the liability you’ve incurred if your business fails.

Partnership

There are three types of partnerships in Canada;

General Partnership – Each partner is jointly liable for the debts of the business.

Limited Partnership – Liability is limited to the amount you invest into the business.

Limited Liability Partnership – Is available to groups of professionals such as; lawyers, accountants, and doctors.

Advantages

  • Eases some of the liability burdens a sole proprietorship would bear.
  • Has the same tax simplicity as a sole proprietorship.

Disadvantages

  • One partner can be held responsible for debts incurred in the name of the business by another partner.
  • Without a partnership agreement, your partner could make you responsible for debts incurred.

Corporation

A corporation is a legal entity separate from its owners or shareholders.

Advantages

  • No member of the business can be held personally liable for debts, obligations or acts incurred.

Disadvantages

  • This legal structure is expensive and can be difficult to set up and operate.

Pick a form of business ownership that is right for your current circumstance, it can be altered, then review as your business grows.

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