Small Business Structure - the Canadian Way

I was approached by a customer the other day with a question I could not answer immediately. It has a small construction company and was looking for a partner so you can win large contracts, and wondered how he should go about doing this. I had to tell him that I could not give advice on how to structure a small business, because I'm not a lawyer or an accountant, but I knew that I could give them information, so I started researching.

I knew my company to create different structures on Canadian small businesses can use. I thought that his choices would be limited to the sole proprietorship, partnership and incorporation. There is also a cooperative, but that does not apply to my client. I thought that the best way would be to help define and give him the advantages and disadvantages of each.

Sole proprietorships are the property of an individual, and legally considered an extension of yourself. This means that any liability or obligation incurred by your business is also a personal responsibility or obligation. So, if your sole proprietorship fails, your personal assets can be seized to pay for that liability obligation. I guess that's a pretty big disadvantage. On the positive side, however, sole proprietorships are the easiest to configure and, and not even have to be registered if its name is exactly the same as yours.

A partnership is an agreement between two or more persons to carry out activities together. The partnership is a legal person separate from you, and must have at least one general partner. All partners can be general, but there must be at least one general partner. Partnerships are relatively easy to configure, but even if it is not a requirement, the parties should have a contract between them to outline the responsibilities and obligations.

A general partner is responsible for business decisions, management of the company and to act on his behalf. Each general partner is jointly and severally liable for partnership debts. This means that a partner can be held liable for judgments, debts and obligations of another partner. A strike against the general partnership, I would say.

So, what about a limited partner, then? Limited partners are not involved in the decision making process or in the day to day running of the business. Usually, the contribution of a limited partner is financial, and their liability is limited to the amount invested in the company. This means you basically have a say in how the money invested is used, which means they have zero power. And when a limited partner becomes involved in the management of the business or acting on behalf of the business, become a general partner.

A corporation is an entity separate from yourself, which means you do not have personal liability for debts, obligations or even acts of the company. You are not personally liable for any decisions to someone else in society does, and you are liable only up to the amount of the unpaid portion of shares you own. Sounds pretty good so far.

Limitation of Liability is a big advantage over other forms of small business structure. And there are more advantages. The companies continue to exist after they die and their shareholders can be transmitted to family or friends. The fundraiser is easier for a company that is an individual or partnership. There may also be tax advantages.

So what are the disadvantages? Well, there's more paperwork, because you're required to keep records and must submit a separate tax statement. It costs more to register a company to create a sole proprietorship or a partnership. And, if you give a personal guarantee, that banks often ask, you may be liable for that amount, even if your company ceases to exist.

I thought the choice of my clients would be limited to these three choices, but further research showed that I was wrong. There is another: joint venture. A joint venture is like a partnership because it is an agreement between two or more persons or small businesses, but there are important differences. In a joint venture, two or more people contribute goods, services or capital to an enterprise. Until now, Canada does not have specific laws governing the joint venture, as it does with all other forms of small businesses.

A joint venture agreement outlining terms of joint ventures, the contributions of each party, management structure and how the profits will be divided. The joint venture partnership to avoid the disadvantage of liability, and also allows each participating municipality to regulate their tax deductions. This is a great benefit to the joint venture.

However, a joint venture has sometimes been defined by the absence of key elements of partnership. This means that small firms wishing to enter into a joint venture agreement must thoroughly understand partnership elements and avoid using them in order to avoid being deemed a partnership rather than a joint venture. What might have started as a joint venture company would lose its advantage to be considered a joint venture partnership, and inherit the disadvantages of a partnership instead.

You can embed a joint venture, which then have the same advantages and disadvantages of each company. And would the advantages and disadvantages of a joint venture. Could this perhaps be the best solution? ......