STARTING A BUSINESS When   starting   a   company,   it   is   key   to   select   a   legal   structure   that   works   for   your   business.      This   is   done   based   on   tax   law   considerations   and   other   factors you   as   a   business   owner   may   find   important.   There   are   three   types   of   legal   structures   for   a   business:   Sole   proprietorship,   partnership   (which   is   a   form   of proprietorship) and incorporation. The   Canada   Revenue   Agency   defines   a   business   as   an   activity   that   you   intend   to   carry   on   for   profit   and   there   is   evidence   to   support   that   intention.   A business includes: •a profession •a calling •a trade •a manufacture •an undertaking of any kind •an adventure or concern in the nature of trade. 1 . Sole Propriotership A   sole   proprietorship   is   the   most   common   structure   available   to   a   business   owner.   The   individual   is   the   business   and   is   not   incorporated.   Personal liability   for   a   sole   proprietor   is   unlimited.   A   sole   proprietor   receives   all   of   the   benefits   which   flow   from   the   business.   A   Canadian   sole   proprietor   cannot   be employed   by   the   business,   although   the   business   can   employ   others.   A   sole   proprietor   includes   any   income   from   the   business   as   direct   income   on his/her income tax return. 1 . Partnership A   Partnership   is   very   similar   to   a   Sole   Proprietorship.   The   one   exception   is   that   it   involves   two   or   more   people   carrying   on   business   together.   Depending on   the   partnership   agreement,   the   partners   can   hold   an   equal   stake   in   the   business.   A   partnership   is   an   association   or   relationship   between   two   or   more individuals,   corporations,   trusts,   or   partnerships   that   join   together   to   carry   on   a   trade   or   business.   Each   partner   contributes   money,   labour,   property,   or skills   to   the   partnership.   In   return,   each   partner   is   entitled   to   a   share   of   the   profits   or   losses   in   the   business.   The   business   profits   (or   losses)   are   usually divided   among   the   partners   based   on   the   partnership   agreement.      Like   a   sole   proprietorship,   a   partnership   is   easy   to   form.   In   fact,   a   simple   verbal agreement   is   enough   to   form   a   partnership.   The   partnership   is   bound   by   the   actions   of   any   member   of   the   partnership,   as   long   as   these   are   within   the usual scope of the operations. The relevant legislation can be found here: Partnerships Act, RSO 1990, c. P.5 - Ontario https://www.ontario.ca/laws/statute/90p05 Limited Partnerships Act, RSO 1990, c L.16 https://www.canlii.org/en/on/laws/stat/rso-1990-c-l16/latest/rso-1990-c-l16.html A   partnership   by   itself   does   not   pay   income   tax   on   its   operating   results   and   does   not   file   an   annual   income   tax   return.   Instead,   each   partner   includes   a share of the partnership income (or loss) on a personal, corporate, or trust income tax return. 1 . Incorporation There   are   two   types   of   incorporation   in   Canada;   provincial   and   federal   incorporation .   Some of the benefits of incorporation are:  Limited liability: potential loss limited to amount invested in the corporation. Perpetual existence: corporation continues on after the death of the individual. Tax advantages: accountants will recommend incorporation once revenues reach a certain point. Raising capital: corporate form of business organization easier to raise capital through the sale of shares. Depending   on   your   business,   an   individual   may   wish   to   incorporate   provincially   or   federally.      Federal    incorporation    of    your    business    gives    you    the    right    to   do   business   all   across   Canada   under   the   same   business   name.   This   applies   even   if   another   company   is   using   a   similar   name   in   another   province.   Under   provincial   incorporation,   you   can   only   operate   your   business   in   that   province   and   have   no   name   protection   outside   that   particular   province.   From    a    tax    perspective,    a    corporation    must    file    a    corporation    income    tax    return    (T2)    within    six    months    of    the    end    of    every    tax    year,    even    if    it    does    not    owe   taxes.    It    also    has   to   attach   complete   financial   statements   and   the   necessary   schedules   to   the   T2   return.   A   corporation   usually   pays   its   taxes   in   monthly instalments. The relevant legislation can be found here: Canada   Business   Corporations   Act   (federal) http://laws-lois.justice.gc.ca/eng/acts/C-44/ Business   Corporations   Act,   R.S.O.   1990,   c.   B.16 https://www.ontario.ca/laws/statute/90b16 Corporations   Act,   R.S.O.   1990,   c.   C.38 https://www.ontario.ca/laws/statute/90c38
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