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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.
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