| There are many different methods of carrying on business. This article
will address three: the sole proprietorship, the partnership and the corporation.
In a sole proprietorship, the individual will carry on business on his
or her own behalf. He or she is the sole owner of the business and may
hire employees. If using a name different than his or her own, he or she
is required to register a business name. A business name registration
is valid for 5 years and can be renewed. As a sole proprietor, the income
and losses of the business are for his or her own account. If creditors
wish to sue, they may sue the individual personally and seize his or her
personal assets (with certain exemptions) to satisfy any judgment.
A partnership exists where two or more persons, whether individuals or
corporations, carry on business together with a view to a profit. The
partnership is not, in law, a separate legal entity. Partnerships are
governed by the common law and the Partnership Act. As between themselves,
partners can have a written or oral agreement. A written agreement is
preferable, as it provides a greater level of certainty as to what the
partners' rights and obligations are as regards each other. As regards
third parties, each partner is liable for all of the partnership's debts
and liabilities. There are general partnerships and limited partnerships,
the rules for which differ.
In a corporation, the owners are called shareholders. The corporation
is a separate legal entity from its owners. It can sue or be sued in its
own name. The owners are only liable to the extent of the property they
have advanced to the corporation in exchange for their shares. This is
commonly referred to as the limited liability concept. Other reasons for
incorporating may include tax planning. The corporation will have directors
and officers. Despite the limited liability concept, they may be personally
liable for unpaid taxes, employment insurance, Canada Pension Plan, for
environmental offences, and for other matters.
In each instance, consideration should be given as to which form of business
organization to use. In some cases, it may be prudent to consider other
forms not described above. |
