 |
Proprietorship Partnership or Incorporation?
The following is meant solely to help the reader understand the main features of primary regulations governing this activity, and not meant in any way to provide a legal interpretation.
From a legal point of view, there are three common types of businesses: sole proprietorship, partnership and corporation. Each has different and important implications for liability, taxation and succession. A lawyer or accountant can advise you on which is suited to your needs and help you set up your business. For specific information on how or where to register or incorporate a business in your area, contact your local Government Agent Office or the provincial Registrar of Companies at (250) 387-7848 or (604) 775-1044
Advantages and Disadvantages of Proprietorship
Starting a proprietorship is the simplest way to set up a business. A sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor would normally have a right against all of his or her assets, whether business or personal. This is known as unlimited liability.
In a proprietorship, one person performs all the functions required for the successful operation of the business. The proprietor secures the capital, establishes and operates the business, assumes all risks, accepts all profits and losses, and pays all taxes. The proprietor is said to be self-employed.
Advantages:
Low start-up costs
Greatest freedom from regulation
Owner in direct control of decision making
Minimal working capital required
Tax advantages to owner
All profits to owner
Disadvantages:
Unlimited liability
Lack of continuity in business organization in absence of owner
Difficulty in raising capital
Advantages and Disadvantages of Partnership
A partnership is an agreement in which two or more persons combine their resources in a business with a view to making a profit. In order to establish the terms of the partnership and to protect partners in the event of a disagreement or dissolution of a partnership, a partnership agreement should be drawn up. Standard form partnership agreements can also be purchased at most stationary stores. Partners share in the profits according to the terms of the agreement.
In a General Partnership, two or more owners share the management of a business, and each is personally liable for all the debts and obligations of the business. This means that each partner is responsible for, and must assume the consequences of the actions of the other partner(s).
A second type of partnership is a Limited Partnership which involves limited partners who combine only capital. They are not involved in managing the business and cannot be liable for more than the amount of capital they have contributed. This is known as limited liability.
A limited partnership also involves general partners, who are involved in management. They are fully liable for the debts and obligations of the business, but may be entitled to a greater share of the profits.
Advantages:
Ease of formation
Low start-up costs
Partners provide additional source of investment capital
Possible tax advantages
Limited regulation
Broader management base
Disadvantages:
Unlimited liability
Divided authority
Difficulty in raising additional capital
Hard to find suitable partners
Possible development of conflict between partners
Partners can legally bind each other without prior approval
Lack of continuity
Advantages and Disadvantages of Incorporating
A corporation, also known as a Limited Company, is a legal entity which is separate and distinct from its members (shareholders). Each shareholder has limited liability. A creditor with a claim against the assets of the company would normally have no rights against its shareholders, although in certain circumstances shareholders may be held liable. It is recommended that legal advice be sought. This type of business can be incorporated at either the federal or provincial level.
Ownership interests in a corporation are usually easily changed. Shares may be transferred without affecting the corporations existence or continued operation.
The following characteristics distinguish it from a partnership or proprietorship:
Limited liability: Normally no member can be held personally liable for the debts, obligations or acts of the corporation beyond the amount of share capital the members has subscribed; and
Perpetual succession: Because the corporation is a separate legal entity, its existence does not depend on the continued membership of any of its members.
Advantages:
Limited liability
Possible tax advantage (if you qualify for a small business tax rate)
Specialized management
Ownership is transferable
Continuous existence
Separate legal entity
Easier to raise capital
Disadvantages:
Closely regulated
Most expensive form to organize
Charter restrictions
Extensive record keeping necessary
Double taxation of dividends
Shareholders may be held legally responsible in certain circumstances
Personal guarantees undermine limited liability advantage
Registering a Proprietorship or Partnership
Proprietorships and Partnerships are regulated by the Provincial Government.
Which businesses must register?
If you choose to carry on a business under a name other than your own, you must register. For trading, manufacturing and mining, the Partnership Act requires you to register a General Partnership with the Registrar of Companies. Contact the Registrar if you require clarification.
Third parties often require registration for use of a company name. Examples include opening a bank account, registering a motor vehicle, opening a day care and bidding on some government contracts.
Partnership Act
This Act provides for the formation of a Sole Proprietorship, General Partnership or a Limited Partnership for people going into business. It does not enable entry into the marketplace or provide licensing. The Partnership Act also governs the registration of these businesses. It states that the Registrar shall not register a business name that is already a name by which a corporation is registered in British Columbia or a name that so nearly resembles that name that, in the opinion of the Registrar, it is likely to confuse or mislead. The Act also says that a name shall not be approved if the Registrar disapproves of the name.
In a proprietorship, one person performs all the functions required for the successful operation of the business. The proprietor secures the capital, establishes and operates the business, assumes all risks, accepts all profits and losses, and pays all taxes. The proprietor is said to be self-employed. In a partnership, two or more people or corporations combine their talents and resources to conduct business. Responsibility for all aspects of the business is usually shared among the partners, regardless of the amount of capital contributed by each individual. Each partner is also responsible for debt incurred by another of the partners.
A limited partnership is a special type of partnership in which there may be one or more general partners and one or more limited partners. Limited partners cannot be held responsible for the liabilities of the partnership beyond the amount which they have committed to invest. Limited partnerships are normally established by a formal agreement between all of the partners.
Limit Liability Partnership is a new type of partnership (January 2005) entity in BC in which each partner is responsible for his or her own liabilities. It makes partners more fully accountable to their clients or customers and ensures that all partners can engage in their business without the concern of having their personal assets at risk, unless there is negligence or wrongdoing.
For more details and the registration process including forms, visit the registry website at http://www.fin.gov.bc.ca/registries/corppg/crllp.htm
Registration Process
To register a proprietorship or a partnership you will need to obtain a Name Approval Request Form along with a Declaration for Partnership and Business Name Form.
Complete the Name Approval Request Form first and either mail it to the Registrar of Companies in Victoria, or take it to your local Government Agent.
When this form is returned to you with one of your choices reserved (usually within two to three weeks), complete the Declaration for Business Name Form and submit it within 56 days of the Name Reservation Date. The registrar will not begin the process until the fees have been paid. For both forms of partnership, registrations consist of filing the declaration signed by all partners.
Why does the business name have to be approved?
The approval process prevents the use of names which are so similar as to confuse or mislead people, and provides a record which allows the public to determine which individuals are behind the name.
The Act also says that a business name shall not be approved if the registrar disapproves of the name. Under the Partnership Act, the registrar does not have the power to change a name once it has been registered.
It is important to know that business names do not have the same protection as corporate names. A corporation may be registered under the same name as a business, but a business name won't be accepted if it can be confused with a corporate name.
Contact
Registrar of Companies
2nd Floor-940 Blanshard Street,
Victoria, BC V8W 3E6
Tel: (250) 387-7848 or 775-1041 in Greater Vancouver.
Fax: (250) 356-0206 or contact your local Government Agent
http://www.fin.gov.bc.ca/registries/corppg/crpartnership.htm
Registering a Corporation
You have the option to incorporate at a provincial level or at a federal level. If a company intends to carry on its activities solely in one province, provincial incorporation may be preferable. If the company wishes to expand its activities outside of its provincial jurisdiction at a later date, it must obtain an extra-provincial license from every other province in which it wishes to open an office or obtain a presence.
Incorporating a Company in British Columbia
Incorporating can be a very involved process and it is recommended that you seek the advise and services of a lawyer and/or an accountant.
Companies are incorporated in British Columbia according to the provisions of the Business Corporations Act. By filing in the necessary paperwork and paying the prescribed fees, one or more individuals can form an incorporated company.
The following acts provide for an incorporation and formation structure for people going into business. They do not enable entry into the marketplace or provide licensing.
Business Corporations Act: This act stipulates the rights of shareholders, directors and the rights of other parties.
Cooperative Association Act: This act provides for the incorporation of associations for the purpose of carrying on business on a cooperative basis. Unlike the Business Corporations Act, each member of a cooperative association has one vote, regardless of the number of shares held by each member.
Incorporation Process
The first step in incorporation is the approval of the name using the same Name Approval Request Form as required for a proprietorship or partnership. Name approval forms can be downloaded at http://www.fin.gov.bc.ca/registries/ and may be mailed to the Registrar in Victoria or processed in Vancouver at the Business Services Society.
The Business Corporations Act will be in effect as of March 29, 2004, replacing the previous Company Act. The filing of new Incorporations must now be submitted electronically at www.corporateonline.gov.bc.ca Details on the new act may be found at http://www.fin.gov.bc.ca/registries/ and at www.corporateonline.gov.bc.ca
Current Fees
Name Approval Request: $30.00 (mailed to Victoria - turn around 1 to 2 weeks) or $45.00 at the Small Business BC (1 day turn around)
Basic Fee for Incorporation: $350.00
Certification of Memorandum and Articles: $25.00
Basic Fee for Incorporation - Cooperative: $250.00
Contact
Registrar of Companies
2nd Floor-940 Blanshard Street, Victoria, BC V8W 3E6
Tel: (250) 387-7848 or 775-1041 in Greater Vancouver
Fax:(250) 356-0206 or contact your local Government Agent
http://www.fin.gov.bc.ca/registries/corppg/crcompanies.htm
Federal Incorporation
You should consider federal incorporation if you want to carry on business in more than one province or outside the country. The heightened name protection provided to federal corporations is also often given as a reason for choosing incorporation under the Canada Business Corporations Act. This is seen as an important element of the right to carry on business throughout Canada. Once federally incorporated, the corporate name has a protected status second only to Trade Mark protection.
Under the Canada Business Corporations Act, any individual or corporation may receive a certificate of incorporation for any legal purpose with the exception of operating such institutions as banks, insurance companies, and trust and loan companies. In several provinces, a federally incorporated company will still have to obtain extra provincial registration to operate.
Contact
Federal Incorporation Information Kits are available from:
Industry Canada, Corporations Directorate
2000 - 300 West Georgia Street
Vancouver, BC, V6B-6E1
Tel: (604) 666-9875 Fax: (604) 666-0238
http://corporationscanada.ic.gc.ca/
Corporation Capital Tax Act
Corporation Capital Tax is levied on corporations that have a permanent establishment in British Columbia and that have net paid up capital (or are part of an associated group that have net paid up capital) in excess of $1,500,000.
Corporations must register with the Ministry of Finance - Income Taxation Branch. A tax return must be filed within 184 days of the end of the corporation's fiscal period. A corporation is required to remit quarterly installments if its tax liability exceeds $3,000 for the fiscal year.
Contact
Ministry of Finance
Corporate Taxation Section
Income Taxation Branch
5th floor, 1061 Fort Street
Victoria, BC V8V 3K5
General Enquiries & Requests for Forms: (250) 953-3082/3083
Registration: (250) 953-3084/3087/3088
Rulings Enquiries: (250) 953-5171/3086/3089
Fax: (250) 953-3094
|
