A Primer on Starting a New Business in Canada
June 15, 2009 By Anurag Gupta Professional Corporation
Thinking of starting a new business but are confused whether it should be a sole proprietorship, a partnership or a corporation? Each form has its disadvantages and advantages.
A sole proprietorship is a type of business entity which legally has no separate existence from its owner. It is the simplest and cheapest method of operating a business. A sole proprietorship is not a corporation, and you do not pay corporate taxes. Rather the owner personally pays income taxes on the profits made from the business. If your business generates a loss, those losses can be offset against your personal income. The primary disadvantage of this structure is that the business owner has unlimited personal liability - all debts of the business are debts of the owner which means an owner’s personal assets can be seized to satisfy business debts. While the simplest form, it may not be the best for many business owners.
A partnership is similar to sole proprietorship except there is more than one owner (partners) who come together to carry on a business with a view to make a profit. Partners are personally responsible for all debts and liabilities but only in proportion to their partnership interest. Partners can offset losses from the partnership from their other sources of income. The most common form of a partnership is the general partnership which is governed by the Partnerships Act (Ontario). It is recommended that partners enter into a partnership agreement that sets out the rights and responsibilities of each partner to prevent future problems.
A corporation is a separate legal entity recognized by law to have rights and responsibilities as persons. Canadian controlled private corporations are taxed at a lower rate than individuals with a potential tax deferral of approximately 27%¸ under certain conditions. This would mean that there is more corporate tax surplus to finance investment activity or even pay down corporate debt. Corporations offer various income splitting mechanisms between family members as well as possible capital gains exemptions, which can result in hundreds of thousands of dollars worth of tax savings on a sale of a business. Neither a sole proprietorship nor partnership offer the capital gains exemption unless a restructuring of your business is implemented.
As a new or existing business owner, you may want to consider your options before selling that next widget.
ABOUT THE AUTHOR: Anurag Gupta
Anurag Gupta is a business and tax lawyer practising in Toronto, Mississauga, Brampton and other cities within the Greater Toronto Area. Anurag Gupta has worked for several in-house organizations, including the legal departments of the Canadian Medical Association, Canadian Blood Services, and an information technology company in Ottawa. He also has experience advising health professionals, technology, manufacturing and small to medium sized businesses on business, tax, privacy and trade-mark matters. Anurag Gupta holds a law degree from the University of Ottawa and a Bachelors of Science degree in Microbiology and Immunology from the University of Miami. Anurag is a member of the Law Society of Upper Canada and the Canadian Bar Association.
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More information about Anurag Gupta Professional Corporation
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
A partnership is similar to sole proprietorship except there is more than one owner (partners) who come together to carry on a business with a view to make a profit. Partners are personally responsible for all debts and liabilities but only in proportion to their partnership interest. Partners can offset losses from the partnership from their other sources of income. The most common form of a partnership is the general partnership which is governed by the Partnerships Act (Ontario). It is recommended that partners enter into a partnership agreement that sets out the rights and responsibilities of each partner to prevent future problems.
A corporation is a separate legal entity recognized by law to have rights and responsibilities as persons. Canadian controlled private corporations are taxed at a lower rate than individuals with a potential tax deferral of approximately 27%¸ under certain conditions. This would mean that there is more corporate tax surplus to finance investment activity or even pay down corporate debt. Corporations offer various income splitting mechanisms between family members as well as possible capital gains exemptions, which can result in hundreds of thousands of dollars worth of tax savings on a sale of a business. Neither a sole proprietorship nor partnership offer the capital gains exemption unless a restructuring of your business is implemented.
As a new or existing business owner, you may want to consider your options before selling that next widget.
ABOUT THE AUTHOR: Anurag Gupta
Anurag Gupta is a business and tax lawyer practising in Toronto, Mississauga, Brampton and other cities within the Greater Toronto Area. Anurag Gupta has worked for several in-house organizations, including the legal departments of the Canadian Medical Association, Canadian Blood Services, and an information technology company in Ottawa. He also has experience advising health professionals, technology, manufacturing and small to medium sized businesses on business, tax, privacy and trade-mark matters. Anurag Gupta holds a law degree from the University of Ottawa and a Bachelors of Science degree in Microbiology and Immunology from the University of Miami. Anurag is a member of the Law Society of Upper Canada and the Canadian Bar Association.
Copyright Anurag Gupta Professional Corporation
More information about Anurag Gupta Professional Corporation
View all articles published by Anurag Gupta Professional Corporation
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
