Should I  Run a Sole Proprietorship, Partnership or a Corporation?

When you decide to start a business, you want to know the business structures available and decide which of them should be adopted for your business. Similarly, if you are already in business and you want to change the business structure what comes to mind would be what options are available to YOU.
The common business structures are:
Sole Proprietorship
Partnership
Corporation

Sole Proprietorship:

This is a simple business structure that allows an individual to operate a business as a self-employed while employing people to work for them. This structure regards the business owner and the business as the same person. The implication of this is that there is no separation between the business and the business owner. Hence, when damages are awarded against the business, the damages can be settled with the personal asset of the business owner.

Setting up a sole proprietorship is not expensive, and it does not involve a lot of paperwork.

The business owner enjoys all the profits alone and has sole and full control over the business.

One major disadvantage of this business structure is that the business owner is exposed as their liability is unlimited. This means the personal assets of the business owner can be used to settle claims from lawsuits.

Registration Requirements: If the business is carried on under a name different from the exact name of the owner, then the business must be registered in the province where the business will be operated.

Partnership:

A partnership is a business structure where two or more persons come together to set up and run a business. Here, the partners bear the risks of the business together and enjoy the profits together. Just like the sole proprietorship, the business owners are the same as the business hence, there is no separation between the business owners and the business. Also, the liability of the partners under this structure is unlimited. However, there is a type of partnership called a limited liability partnership that allows for limited liability. There are different types of partnerships such as general partnerships, limited partnerships, and limited liability partnerships.

General Partnership: this is a type of partnership where two or more persons come together to form, run and manage a business. The persons are jointly and severally liable for the debts and obligations of each partner. Simply put, other partners can be bound and liable for the acts of another partner whether or not they are aware of the acts.

Limited Partnership (LP): this type of partnership allows two or more persons to come together to form a business. However, there may be general and limited partners. The general partners are involved in the day-to-day running of the business while the limited partners are not involved in the running of the business, they provide funds, cash or kind which serve as capital for the business. The liability of a limited partner is only to the extent of their investment in the business.

Limited Liability Partnership (LLP): this type of partnership allows two or more persons to carry on the business of a limited liability partnership which is registrable under the law provided it is set up to carry on business in a province like Manitoba to practice a profession. Unlike LP, in LLP there is no general partner who takes on the risks, liabilities, and debts of the business. All the partners in LLP are limited partners thereby making their liabilities limited to the extent of their investment in the business.

This business structure is cost-effective

Depending on the type of partnership, the liabilities of the partners may be limited or unlimited.
Registration requirements: a partnership depending on the type of partnership must be registered following the laws of the province where the business will operate. In Manitoba, the registration of an LLP requires the business owners to get licensed and ensure the law regulating their profession allows for the running of the business as an LLP.

Corporation

This type of business structure gives the business owners a separate and distinct personality from the business. Hence, the liability of the owners is limited to their shares in the business. A corporation has a legal personality, this simply means that just like an individual, a corporation can sue and be sued.
This business structure allows the business to raise capital through the sale of shares to prospective investors. The continuity of the business is also guaranteed even after the demise of the owners or shareholders.
This business structure is costly and not easy to maintain as there are a lot of returns or reports to be filed in compliance with regulatory requirements. Maintaining a corporation requires a lot of paper works.
Registration Requirements: The law requires that for a company to be registered, it must have; share capital, shareholder(s), and director(s) among others. A corporation can be registered at the provincial level and the federal level especially if the corporation will be operating in more than one province.
It is important that you receive legal, business and tax advice before choosing a business structure for your business. At F.Taiwo Law Office, we have vast experience in this area of law and we are willing and able to assist you.

Disclaimer
This article is presented for informational purposes only. The content does not constitute legal advice or solicitation nor does it create a solicitor-client relationship. The opinions stated are exclusively the writers’ and should not be attributed to any other party, including F.Taiwo Law Office or its clients. The writers make no assurances regarding the accuracy or adequacy of the information in this article.
If you are seeking legal advice, please contact Funmi Taiwo at ft@ftaiwolaw.ca. We would be pleased to provide you with our assistance on any issues raised in this article.