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1. there are three kinds of partnerships:0 g) {, c/ Y; V) v0 C0 ^
General Partnership, Limited Partnership, and Public-Private Partnership
+ R$ K8 x* E6 Q xSee details on http://www.alberta-canada.com/investlocate/1012.html
- o) H8 N- y: I- c1 s" e* _2. See the article:8 v e0 q' ^6 k: S i3 O
PROPRIETORSHIP, PARTNERSHIP AND INCORPORATION
4 [: i' p5 t8 Z9 T3 L: _By Jay Chauhan$ T7 S: q' g/ b' w# \1 Y- N
LEGAL FORMS OF BUSINESS ORGANIZATIONS
' p$ J( _5 V# S I% lThere are three basic ways in which a business organization can exist, namely a sole& n8 |. Q) \% p' r; A0 [' J. _# I7 t
proprietorship, a partnership, and a corporation. A sole proprietorship is where one person
, t9 f* N7 j0 L- t$ Susing his own name or any other name, conducts business. In a partnership, there are two or
3 D$ Q# o) L- [9 m+ @9 `" smore persons carrying on a business activity under their own names or the name of a
% l) f5 j4 P! P5 C# o1 S# r& tpartnership. Incorporations are for legal purposes and entirely separate, legal entity created by
1 B6 f% k8 }+ \8 r9 f* Z8 h2 qlaw and can be used by a single person or more persons together.0 j) `- t6 f% ~6 d i* N
SOLE PROPRIETORSHIP
: {" n8 L" W6 K5 {/ J t. DIf a one-man operation uses a name different that his own, he must register this name under the
5 }! a4 j3 m* H! k. ~; L7 FPartnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it
5 F8 ~7 i# C+ q) I8 ~ ican be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the
& y9 ~# q' |) B, {individual remains personally liable and his home and personal assets can be used to satisfy a
# s. E( }, _* m8 W" Kjudgement. The registration lasts for five years, and must be renewed at expiry.
9 B8 h7 i1 y# ZIt is possible for a sole proprietor to call his business by a name such as "ABC Company". The3 ]# C( E2 {8 ?) W7 H! P: y; r* y
fact that the word "company" is used does not provide any extra legal protection as; c T+ x* b" }) o% W0 K
incorporation does, and this is commonly misunderstood by many. For tax and legal purposes,# W: E N8 Z2 {/ J3 [9 I3 m) D" c4 w
the sole proprietor is the same as the individual, even if he uses a different name.
5 d0 h# h, D- H' |8 mPARTNERSHIP
@8 C' ?7 \' w) C) {8 D8 j( \Where two or more persons are engaged in a business activity, it is known as a partnership.! W6 S( m# [# E& C
Like a sole proprietorship, they must register the business name if names other than their own
+ p" a' U4 i) uare being used to conduct the business activity. The same provisions of registration apply and
$ J6 p$ ^6 J5 {. ]. A1 Reach partner must sign this form and such declaration lasts five years. Here again, if the word6 `* m( V- O, d! R, i
"company" is used at the end of the name, it provides no extra protection, like incorporation.
' k- b. d. t6 J8 J7 L, cEach partner remains fully liable for the debts of the partnership, regardless of which partner1 e# `/ D) p: z, {9 O
incurred the liability. In case of financial difficulties, the judgement can be enforced against1 s/ ?4 e, Z; z7 C% o
each and every partner and if any one partner does not have any monies, the other partner who$ Y( p/ \' l' _: p3 L+ g E3 A9 @
has the property and personal belongings and a house, he would have to meet the liability./ j$ F5 Q4 w _: v, G, R
Each partner is liable too pay tax on his share of the profit made. For legal purposes, the
- b( R) s: L$ A/ B* Sliability is full, despite the percentage of partnership interest.3 p7 A+ P! l4 s6 N0 p$ u
2/ k5 Q& \& v) q, k( t
It is very desirable for the partners to have a partnership agreement, which sets out the basic6 p3 B; {1 Q# r8 h
terms of the partnership arrangement, including what business will be conducted, profit and
; l* |. q' F- n7 U3 _- k' Nloss sharing formula, whether the partnership will continue the death of a party, where the' N3 B& J# i3 Z- w: F V
account of the partnership will be maintained, and if any partner is to be employed full-time,7 \2 _1 l I2 g4 O V2 \
what salary he may expect. If a partnership agreement is not provided, the provisions of the
7 Y) K6 o/ { Y3 A7 FPartnership Act will apply, and in such events, the partnership will dissolve, for example, on
/ y, ^( A; A' X7 L7 L% a- Ithe death of a partner. The partnership agreement also would provide for a formula by which$ A. g) \. F5 t t2 A: s2 s
upon disagreement, a party could withdraw from the partnership. Where no agreement is# s t, X& T. T3 v
provided, any partner could simply register dissolution of partnership and terminate the
! ^2 E0 M) b& Q+ x% \" Dpartnership arrangement. Legal advice is desirable in drafting a partnership agreement.4 V% p0 X3 f0 @! F
In case of failure of a partnership to register a business name, no action can be brought by the
1 e+ T1 o& ?! C4 `2 y/ l2 y: ?partnership to sue a defendant, who fails to pay them.
( T. _% r# u0 O( O' j4 f/ cINCORPORATION
1 i9 W4 V) ?) y: F( g# uIncorporation is often called a limited company. When a corporate body is formed, it creates a7 h( H; `% N+ Q2 z2 n/ B
separate legal person, and has a different legal existence than the person or persons who formed
$ }, @2 Z; D2 t. ~that legal entity. A corporation may be identified by using the words "limited", "incorporated",
0 O, E% `" c$ U2 f6 Qor "corporation".! S2 q1 u/ O0 l" U4 ~
The word "limited" correctly describes the idea of limited liability, when a corporation is
3 n3 S' g& H* o Jformed. Unlike the sole proprietorship and partnership when a corporation is formed, the0 |5 j5 [! J" Q6 U+ V
individual or the persons forming it are only liable for the amount of investment made by them,8 ~$ P& c4 o9 H- c8 l
in the corporation. In case of financial problems arising, the judgment can be enforced only' Y8 e3 D, {1 z4 ]8 X3 q
against the assets and property owned by the corporation, and the assets of the individual and
% ^5 h* t) m6 j" e- xhis home cannot be touched. This is the most important reason for forming a corporation, as3 i: N- f' T. F1 C! d
most people wish to protect their personal assets against the risks of the business.* z: m/ \. O. U6 c3 l4 F
A corporation offers a variety of tax planning benefits. The most common benefit derived is the" h. X$ @: i1 N3 y! h- d
possibility in a small company, of splitting the income between the husband and the wife.
6 R9 @( a) C) I! X0 x3 t% z' RUnder the attribution rules of the Income Tax Act, the income derived by the wife is deemed to
$ v `5 h' H+ {( k4 F& ]$ }be that of the husband, but where a corporation is formed, and the wife works for the/ Y8 l$ F" \/ v$ x, x
corporation, it is legally possible for the husband to divert a certain amount of income to the$ U; s% c4 E* l% O$ u! e
wife, provided that she is doing some work in the company.
: r: e7 N: B4 L. p, ]9 w# m; k5 c' B) TA corporation is also in effect, an estate-planning vehicle. By issuing common shares to
. r5 E' Y$ F* ?$ K3 A; Echildren in trust, the growth value of the shares of the corporation can be transferred to the$ u x$ P& Z: ^! e& o
children without incurring inheritance taxes under Succession Duty Act, and Income Tax Act.
" a4 r8 ~8 C2 g7 \A corporation can be formed either under the Canada Business Corporations Act, or the8 y2 l- J9 j! E1 s ]
Provincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
' H5 J& _6 ]2 Y- acompany is desirable where it may, in the future, have head offices in various provinces. A
6 x) O1 x! m! ~3 W- afederal company does not require extra-provincial licenses to operate in different provinces. It0 O1 V+ R/ F. f$ `( r* P+ L. f
does require, however in Ontario, a Licence In Mortmain. This license is required when the
) c5 Z% O5 X" k' _2 Fcompany owns or rents property in Ontario. The Ontario corporation does not require such
+ T1 ~0 x& H9 X) O; ulicense to operate within Ontario, but may require extra-provincial license to operate in other- Y# P- {0 X) h1 F9 s1 M+ w
provinces, except Quebec.& P! ^- O) x D4 |! [( p
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' b7 S* d s6 Q m2 s) E3 dIt is now possible for a one-man person to form incorporation and he may be the sole director
$ X* P y& }' x3 l1 Q# Valso the sole shareholder in that company. Where there are more shareholders, a difficult( C9 S6 ?. Y# _4 P
decision to make is the proportion of shares owned by each shareholder in the company. A 51%
$ K4 t( u5 F. ^! pcontrol usually gives the right to such shareholders to elect the board of directors and3 a( D, P [3 m! p, d
accordingly, exercise effective control of the operations of the business.) q+ y N+ C4 W6 A" m
The directors of a company are responsible to the shareholders and must hold an annual
9 i/ [9 ^" j1 d8 b7 {general meeting each year, even if there are only one or two shareholders, who might be the
. @: L* T" U* |- q/ r$ [same persons as the directors.. t; D- B* m1 N) y. \3 V- B/ O
Where there are two or more shareholders in a company, a buy-sell agreement or some
' E w Z9 Z5 P0 h$ Oshareholders agreement is very desirable. Such agreement can set out how a party can: I [3 K9 t2 E) S5 t. F
withdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.; u2 v9 h2 s* Q3 Q# O y+ D
This agreement is commonly ignored by shareholders until a dispute arises, when it is usually! U7 U$ F- a0 d7 \
too late.
. z: }/ F8 F9 J5 A% r! {Competent, legal advice is desirable in forming a company, as the procedure is not simple as
9 B) n$ f4 N7 Y4 E" sthe registration of partnership or proprietorship is.
7 j3 f9 w0 I' j5 [& {Chauhan & Associates
( h! o7 [# X5 k& u2 O" F! p6 }6 zBarristers and Solicitors
6 I8 w" I/ D4 c0 Q$ w330 Hwy. No. 7 East, Suite 309% A; H( i D5 z- R
Richmond Hill, Ontario! a! r7 H+ C- S
L4B 3P8" ~- E' J- M# g; l8 {8 E
Tel. (905) 771-12350 I3 ^ g$ e9 m- R* {8 U; q
Fax (905) 771-1237+ t1 i0 q- E( A* d0 p* @
Email: globalmigrations@hotmail.com
5 @- L/ ] w3 b4
) u+ _" a( ~9 E2 ]. Q6 z/ y7 R" Z+ gPARTNERSHIP MEMO& W% `9 y% g1 U: M. Y1 E
REGISTRATION REQUIREMENTS
: _4 s( Y, e+ [2 g8 gWhere two or more persons are engaged in a business activity, it is known as a/ t% u9 f4 B+ k+ M% a5 k. a
partnership. They must register the business name if names other than their own names are
( r# U4 \$ w5 }$ jbeing used to conduct the business activity. Partners must sign the declaration form.) S. q) U" p$ `, `/ l$ |) [5 `
Registration is valid for 5 years. If the partnership is not registered no action can be brought by
1 @' z3 E$ Z9 w: Q. xthe partnership against a debtor for recovery of money until the partnership is registered.
+ L0 T; {! o& V; d4 @2 WIf you want me to assist you in the preparation or registration or partnership please let* Z, o B+ S2 U) a2 d
me know.
+ F4 I2 z- N. Z( c+ R: mLIABILITY% Z! N9 L: e$ w9 S* o
Each partner remains fully liable for the debts of the partnership, regardless of which" y g" i% C. \3 k& T
partner incurred the liability. In the event of financial difficulties, a judgment can be enforced' `, o1 Q' ^2 n' \
against each and every partner. If any one partner does not have nay money, the other partner v( N" ?, x+ ^9 D# f+ ~. K
who has the property and personal belongings and a house would have to meet the liability.& t: Y; t+ j! I; c
Using the name company for a partnership does not eliminate personal liability.
% S: l; @- ]+ e2 F) Z) ?. S3 ^TAX) {1 |% D/ `1 B) z, j/ y* L+ H+ Z
Each partner is liable to pay tax on his share of the profit made. Expenses are deducted) n: b4 u1 q2 T' S- k
from the profit and the share of net income of each partner is declared on his tax return./ `# a, v T/ m Y8 j# r3 y
Partnership can have a different fiscal year than the calendar year.9 T& P8 |4 m. m! j* j) p
AGREEMENT4 Y3 X' C; Y7 q
It is very desirable for the partners to have a partnership agreement. It should set out' t! {' c% q E6 N8 z! }
the basic terms of the partnership arrangement, including what business will be conducted,, W, V% h: J0 {9 ]: X3 p% [
profit and loss sharing formula, whether the partnership will continue on the death of a party,
7 e# s6 C' U9 d# ywhere the account of the partnership will be maintained, and if any partner is to be employed6 ~" l# A/ i6 ?2 X( f
full-time, what salary he may expect. If a partnership agreement is not provided, the provisions
9 |( [( F3 e7 ]) v( R, Xof the Partnership act will apply. Without an agreement the partnership would dissolve on the
( I, e& H( B" H9 ? Hdeath of a partner. The partnership agreement should also provide for a formula by which in
+ m p: R0 j7 Z& j% `7 V ?, Gthe event of disagreement a party can withdraw from the partnership. Where no agreement is
: C2 k8 x0 l# n$ mprovided, any partner could simply register dissolution of partnership and terminate the/ y4 V- O1 E1 W, i
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.
, `/ i/ T5 E* X: H, F6 eINCORPORATION. u P) K; y# ^" F* z. Q
Incorporation is often referred to as a limited company. When a limited company is0 |* _$ }- D; v2 G' [
formed, it creates a separate legal person, and has a different legal existence. A corporation/ o8 p( G3 `5 A" ^* _6 j3 Y
may be identified by the use of the words "limited", "incorporated", or "corporation".
5 z; f' ?: S- e1 X9 i. u5' z; x0 o& Q, M. z
The word "limited" correctly describes the concept of limited liability of a corporation.
, }- e1 [# ?4 x' [' h/ W* IUnlike the sole proprietorship and partnership when a corporation is formed, the individual or# u7 j$ k% w: Q4 W5 F
the persons forming it are only liable for the amount of investment made by them in the
( c3 W; m, [& ]: }" I1 gCorporation. In the event of financial problems arising, the judgment can be enforced only) j8 f+ X5 o0 ~6 z; d9 T; u6 ~9 r9 P
against the assets and property owned by the corporation, and the assets of the individual and% I: H# J4 T3 c9 @6 a. d5 @
his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.% Y: K, n0 C1 I0 ]7 O8 |9 e/ _
The most important reason for forming a corporation is to protect personal assets against the
7 v: ~! \8 b6 H5 Z* Qrisks of the business.
% L2 x9 ~# M: {; sIt is now possible for a one-man person to form a corporation and he can be the sole
* Q3 z- v3 O5 _7 M A- `director and also the sole shareholder in that company.
: v+ u1 X1 L: h$ a" ^% C) s3 |/ f1 aA corporation is more expensive but desirable for the protection of personal liability.
# l' Y' o- j" m: _, VJay Chauhan9 ^2 d4 c) w% t* E& I$ u2 L7 e; h3 o
Barrister and Solicitor
/ m; f! k2 Y' p9 z+ { b. m3 r: s2 b330 Highway 7 East, Suite 309
" t8 u7 _/ m: L R- A; _% pRichmond Hill, Ontario @- L, i' g$ f; G5 i, P
L4B 3P8/ ^% ]1 M o5 N$ b* B9 i
Tel.: (905) 771-1235
X: @! z$ x( cFax: (905) 771-1237
% g; i0 q& g, V# a. DEmail: globalmigrations@hotmail.com |
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