What’s the difference between a corporation, partnership, & sole proprietorship
Experienced legal team helps you with partnerships, corporations, and sole proprietorship in B.C.
If you’re looking to start a new business, it is vital that you choose the appropriate structure for your company. At Castle Law LLP, we have extensive experience advising veteran business owners as well as budding entrepreneurs on a wide range of business-related matters.
Depending on your unique circumstances and objectives, we can assist you in forming the following business structures:
- Sole proprietorship
- Partnership
- Corporation
What is a sole proprietorship?
Under the structure of a sole proprietorship, legal and tax authorities consider the operator and company to be indistinguishable. According to tax statutes, a sole proprietorship counts as income for the proprietor and thus requires that the company’s financial information be recorded in a separate section of the personal income tax document.
If you wish to set up a sole proprietorship, you must recognize that your business’s money and responsibilities are yours, and vice versa.
Most part-time businesses are sole proprietorships for tax management — losses from your business can be applied to reduce income acquired from other channels.
The con of setting up a sole proprietorship is that you alone are liable for all debts and conduct of the business.
What is a partnership?
Partnerships are similar to sole proprietorship except there are two (or more) owners instead of one. While there is no formal legal structure for a partnership, joining parties typically draft a contract that lays out the obligations of the partners as well as how profits, expenses, and debts should be handled.
There are two types of partners: general and limited.
General partners enjoy unlimited liability while having full management control of the company. Limited partners have little to no involvement with the management aspect of the business and their liability is limited by their investment amount in the business.
Advantages and disadvantages of a partnership
The primary benefit of a partnership is that it combines the income, expertise, and management of two or more parties. The most successful partnerships involve two or more partners who complement each other.
In addition, partnerships, like sole proprietorships, are not required to file different tax returns or pay a separate income tax since the finances of the partnership are combined with the personal income of each partner in order to estimate their total tax liability. Yet one of the problems with a general partnership is that one partner can be liable for all debts and obligations sustained by the other partner in the business’s name.
Partners can also be at fault for any wrongful act or omission by other partners while they are conducting the standard operations of the business. In addition, the dissolution of partnerships can be a complicated and litigious affair.
If you choose the partnership structure for your business, our attorneys can assist you in drafting a sound partnership agreement to prevent future disputes.
What is a corporation?
Unlike a sole proprietorship or partnership, a corporation is a separate legal entity owned by shareholders.
Creating a corporation establishes formal ownership shares, which puts a taxation and legal cushion between the shareholders and the business. As a result, corporation owners can reap certain tax benefits as they are typically paid out as employees of the business.
If you choose the corporation model for your business, you gain liability protection for the company’s debts as well as protection for your business’s name. A corporation continues to exist until it is officially “wound down,” regardless of how many officers and shareholders come and go. It is vital that your corporation maintain accurate records and report its financial situations to competent authorities annually.
Advantages and disadvantages of corporations
The main advantage of a corporation is personal liability protection for the debts, obligations or actions of the business. In fact, shareholders are only liable for the unpaid percentage of the share they own.
A con of creating a corporation is that it can be the most costly and complicated business ownership structure to set up and operate. That said, if your company structure isn’t overly complex, you can incorporate in 20 minutes or less.
Four steps to incorporate in Vancouver, B.C.
You can incorporate online by visiting the Corporations Canada website.
Below are the basics steps to incorporating in B.C.:
- Name and register your corporation
- Create articles of incorporation
- Establish the initial address of the head office
- Pay the fees
Although this seems like a simple and straightforward process, it is essential to work with a knowledgeable attorney when incorporating and operating your business. A skilled attorney can advise you on a wide range of business matters including the purchase of commercial real estate for your corporation.
Contact Castle Law LLP, help with business structures in Vancouver
Castle Law LLP, represents entrepreneurs and business owners throughout B.C. Whether you need help drafting a partnership agreement, resolving a contract breach, or creating a new corporation, we can provide you with hands-on guidance at every turn. To discuss your business concerns with an attorney in Vancouver, call or contact us online today.
