1. Sole proprietorshipA sole proprietorship is informal and easily created, which is why it is the most common structure chosen by new businesses. Show
In this structure, the business and the operator are one and the same in the eyes of legal and tax authorities. Tax law treats a sole proprietorship as an income source for the proprietor and therefore requires that the business’s financial details be listed in a separate section of the personal income tax form. In a sole proprietorship, the business’s money and responsibilities are the proprietor’s, and vice versa. This presents some possibilities for tax management on the part of the sole proprietor. If the business generates a loss, that loss can be applied to reduce income gained from other sources. That is why most part-time businesses are sole proprietorships. However, sole proprietorships have a downside in that the proprietor is personally liable for all functions and debts of the business. 2. PartnershipA partnership is similar, but instead of one proprietor there are two or more. As with a sole proprietorship, there is no legal structure for a partnership. However, partners usually have some type of contractual agreement that governs, in percentage terms, the sharing of revenues, expenses and tasks. When preparing their taxes, the partners apply those same percentages to their income and expenses. 3. CorporationCorporations are more complicated legal structures compared to sole proprietorships or partnerships. Incorporation is a process in which a separate legal entity, owned by its shareholders, is formed. Incorporation creates formal ownership shares, which produces a taxation and legal distance between the company and the shareholders. This in turn has tax advantages for the owners, who are usually paid as employees of the corporation. Incorporation provides some liability protection for the corporation’s debts and offers some measure of protection for a company’s name. Company officers and shareholders may come and go, but the corporation exists until it is wound down. Incorporation is most often done under a charter in the operator’s home province, but some companies that operate in many provinces or internationally, or that require enhanced credibility, incorporate federally, which is more costly and complicated. Corporations must keep meticulous records and report their financial situations to competent authorities yearly. Therefore, their financial statements must be audited annually by chartered accountants. Incorporation is simpler and cheaper than you might thinkMany entrepreneurs are not interested in the idea of incorporating, at least not in the early stages of building a business. “Starting a business takes a lot of time and energy. There’s a lot of information to sort through, and entrepreneurs say that they’ll think about incorporating later on. They don’t yet understand the benefits of incorporating,” says Stefanie Ricchio, a chartered professional accountant (CPA) and founder of the consulting firm The Modern Accountant. Laura Didyk, Vice President, Client Diversity, echoes these comments. “Incorporating is often seen as an administrative burden for self-employed people starting a business, especially women. It’s common to think that the quickest and easiest way is to use your own name.” “However, it’s not so time-consuming and complicated,” assures Yasmine Chaouni, a manager with Corporations Canada. “If the company structure is not too complex, you can do it in less than 20 minutes,” she says. The issue of cost, often perceived as high, is also a misconception and should not be an obstacle to incorporating. “Obviously, it depends on whether you want or need legal and accounting advice, but you can initially incorporate a business for as little as $200 under federal jurisdiction, with subsequent fees for extra-provincial registration which vary depending on the provinces where the business intends to carry on business” adds Chaouni. 4 Steps to incorporate a business in CanadaEntrepreneurs who want to incorporate can do so directly online on the Corporations Canada website. Here are the four steps to incorporate in Canada
What are the 3 forms of business and what are the advantages and disadvantages of each?There are three basic forms of business ownership: sole proprietorship, partnership and corporation. Each of these forms of business organization has advantages and disadvantages in such areas as setting up the company, paying taxes and assessing liability for business debts.
What are the 3 main types of business?The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation.
What are the advantages and disadvantages of business organizations?Advantages of a corporation include personal liability protection, business security and continuity, and easier access to capital. Disadvantages of a corporation include it being time-consuming and subject to double taxation, as well as having rigid formalities and protocols to follow.
What are some advantages and disadvantages of a proprietorship?Sole proprietorship – advantages and disadvantages. you're the boss.. you keep all the profits.. start-up costs are low.. you have maximum privacy.. establishing and operating your business is simple.. it's easy to change your legal structure later if circumstances change you can easily wind up your business.. |