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.
A sole proprietorship is a business owned and operated by one individual.
- 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.
- 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.
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.
- Eases some of the liability burdens a sole proprietorship would bear.
- Has the same tax simplicity as a sole proprietorship.
- 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.
A corporation is a legal entity separate from its owners or shareholders.
- No member of the business can be held personally liable for debts, obligations or acts incurred.
- 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.