Distinguish different types of business sole proprietorship partnership and corporate
|
Generally speaking, there are three ways to register a business in Ontario: sole proprietorship, partnership, or a corporation. Show Sole proprietorshipA sole proprietorship business is operated by one person. The income is directly attributed to that person (the “Owner”) as “business income”. The business does not have a separate existence apart from the Owner. Revenue and expenses are included in the in the Owner’s income tax return, and the Owner is fully liable for all debts and obligations. There is no separation between the Owner’s business assets and personal assets. In fact, if the business is operated under the full legal name of the Owner, it may not even be necessary to register a business name. PartnershipA partnership is a business operated by two or more people, “with a view to a profit”. Partnerships can occur organically, without any paperwork and sometimes without the people even meaning to create one. However, it is best practice to have a partnership agreement in place, and to set out the rights and responsibilities of the partners involved. This is especially important because the partnership does not have a separate legal existence apart from the partners – income is included in a partner’s personal income tax return, and the partners are all personally liable for debts (except in the case of a limited partnership – where there must be at least one general partner who is fully liable, and there may be other limited partners whose liability is limited). Each partner can bind the partnership, and a partner might be responsible for the actions of another partner. CorporationA corporation, on the other hand, has a separate legal existence from the people who own it. A corporation, therefore, has separate tax filings, can change ownership, and has a continuous existence apart from the owners/shareholders. Because of its separate legal existence, a corporation can also shield the shareholders from personal liability – except in certain circumstances, a shareholder’s personal assets are protected from the liabilities of the corporation. On the other hand, corporations are closely regulated, and have higher start up and ongoing costs. People may choose to incorporate for any number of reasons including: collective ownership, succession planning, limited liability, tax advantages, and raising funds, to name a few. If you choose to incorporate, you will need to file articles of incorporation and set out your shareholders, directors and officers. Shareholders are the owners of the corporation – they are the ones who are entitled to the profits of the business and must approve certain corporate changes. Directors are elected or appointed by the shareholders, and they, as a Board, manage the corporation and make business decisions. Officers are appointed by the directors and the directors define their duties and delegate tasks to them for the “day-to-day” operations of the business. It is possible for the same people to wear all three hats, and this is certainly the case for smaller businesses. There are other considerations as well for new corporations, including banking, accounting or tax, borrowing, and, often, an agreement between shareholders to set out their rights and obligations. A “unanimous shareholders’ agreement” is an agreement signed by all shareholders, and confirmed by the corporation, that can deal with issues such as: restrictions on transfer of shares, mandatory buy/sell provisions upon death or default; required approvals for certain corporate actions; obligations on shareholders to fund the corporation; confidentiality and non-competition arrangements; etc. Deciding on a business structure is the first step to starting your new business – it is an important decision, and if it's done properly with appropriate legal advice, can save you time and money down the road. Get in touch with one of our Business Law experts to learn more. The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance. Sole ProprietorshipA sole-proprietor is a person who owns a sole-proprietorship business that is registered with the Accounting and Corporate Regulatory Authority (ACRA). A self-employed person is a person who earns a living by carrying on a trade, business, profession or vocation. A sole-proprietor/self-employed person do not report to a boss, because he is his your own boss. The income that he earns is considered business profits, not salary. Characteristics of Sole Proprietorship:
Some business owners choose to create partnerships or limited liability companies instead of a corporation. A partnership can also be called a firm. This refers to an association of a group of individuals working together in a business or professional practice.  While corporations have rigid rules about how they are structured, partnerships and limited liability companies allow the division of management authority, profit sharing and ownership rights among the owners to be very flexible. Partnerships fall into two categories. General partners are subject to unlimited liability. If a business can’t pay its debts, its creditors can demand payment from the general partners’ personal assets. General partners have the authority and responsibility to manage the business. They’re analogous to the president and other officers of a corporation. Limited partners escape the unlimited liability that the general partners have. They are not responsible as individuals, for the liabilities of the partnership. These are junior partners who have ownership rights to the profits of the business, but they don’t generally participate in the high-level management of the business. A partnership must have one or more general partners. Limited liability companyA limited liability company (LLC) is becoming more prevalent among smaller businesses. An LLC is like a corporation regarding limited liability and it’s like a partnership regarding the flexibility of dividing profit among the owners. Its advantage over other types of ownership is its flexibility in how profit and management authority are determined. This can have a downside. The owners must enter into very detailed agreements about how the profits and management responsibilities are divided. It can get very complicated and generally requires the services of a lawyer to draw up the agreement. A partnership or LLC agreement specifies how profits will be divided among the owners. While stockholders of a corporation receive a share of profit that’s directly related to how many shares they own, a partnership or LLC does not have to divide profit according to how much each partner invested. Invested capital is only of the factors that are used in allocating and distributing profits. Registering a business in Singapore is easy. What are the 3 types of business ownership differentiate each?Here's a rundown of what you need to know about each one.. Sole Proprietorship. In a sole proprietorship, you're the sole owner of the business. ... . Partnership. A partnership is a non-incorporated business created between two or more people. ... . Corporation. A corporation is a legal entity separate from its shareholders.. What are the 4 types of business organizations?An overview of the four basic legal forms of organization: Sole Proprietorship; Partnerships; Corporations and Limited Liability Company follows.
What is the difference between business partnership and corporation?The main difference between a partnership and a corporation is the separation between the owners and the business. Corporations are separate from their owners, but in partnerships, owners share the business's risks and benefits. In a partnership, two or more individuals who wish to do business together form a company.
|
