Monday, February 4, 2008

Advantages of incorporating vs. being a sole proprietor in British Columbia

Fo Forms of Business Organizations

1. Sole Proprietorships

A sole proprietor is fully responsible for all debts and obligations related to his or her business. In a sole proprietor, they have unlimited liability meaning that if someone has a claim against a sole proprietor they have a right against all of his or her assets, whether business or personal. *1

If a sole proprietor decides to run the business other than the name of his/her own, they must register with the province.

2 2.Partnerships

A partnership is an agreement in which two or more persons combine their resources in a business. A lawyer should be hired to draw up a partnership/shareholders agreement which establishes the terms of the business and to protect partners/shareholders in the event of disagreement or dissolution of the business. Partnerships need to be registered with the province.

There are 2 types of partnerships:

General Partnership

All members share the management of the business and each is personally liable for all the debts and obligations of the business. You are responsible for your partner’s actions therefore must assume the consequences of their actions.

Limited Partnership

Limited partners take no part in control or management and are liable for debts to a specified extent only. They contribute capital and receive a smaller portion of profits then the general partners.*2

3. 3. Corporations

A corporation is a legal entity that is separate from its owners. Therefore, shareholders of a corporation are not personally liable for the debts, obligations or acts of the corporation. A corporation is identified by the terms 'Limited', 'Ltd.,', 'Incorporated', 'Inc.', 'Corporation', or 'Corp.'.*3

Different Types of Corporations:

Private Corporation

Public Corporation

Federal Corporations

4. 4. Co-operatives

A co-operative is a corporation organized and controlled by its members, who pool resources to provide themselves and their patrons with goods, services, or other benefits.*3

Incorporating vs. being a sole proprietor in British Columbia

In B.C, there are many advantages of incorporating your business instead of being a sole proprietor. The first and main advantage is that with corporations you have limited liability. This means that if something were to go wrong with your business and you are not able to pay your suppliers, they cannot go after your personal assets. If you were a sole proprietor, you have unlimited liability so the supplier would be able to go after all of your assets. Another advantage of incorporating is that ownership is transferable and the business has continuous existence. In a sole proprietorship, if the owner passes away the business ends as well. If something like this was to happen to a shareholder in a corporation, the business would still be able to remain open.*4 With corporations, funding is easier to attain as shareholders are able to pool together their resources making it easier to raise capital. With more people involved in corporations in allows for specialized management. Different people are experts in different areas which results in better decision making and management of the business. Finally one of the main reasons why to incorporate in B.C is to take advantage of the possible tax advantages if you qualify for the small business tax rate. For the first $400,000 in income, the tax rate would be about 17% compared to the top personal tax rate of about 44%.*5 By incorporating your business you will improve your image and attract more investors than a sole proprietorship.

References

*1- Sole Proprietorships. CanadaBusiness.ca. Retrieved on 2008-02-01.

*2-Ward, Susan. Choosing A Form Of Business Ownership. About.com. Retrieved on 2008-02-01.

*3-Forms of Business Organization. CanadaBusiness.ca. Retrieved on 2008-02-02.

*4-Perez, Lionel J. Types of Business Organizations. Retrieved on 2008-02-03.

*5-Why Incorporate?. www.incorporate.ca. Retrieved on 2008-02-04.

Further Reading:

Incorporating a business

10 steps to incorporate your business

Why Should I incorporate?

Should You Incorporate Your Small Business?

External Links

Federal Incorporation

Need Help Incorporating?

Business Name Registration

Registering a Sole Proprietorship or Partnership

Business Seminars in B.C

Steps to Incorporating A Company In B.C

1 comment:

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