Businesses can take different forms and shapes.
Whether you are thinking of starting a business or have an existing business that is not incorporated, we will help you determine what structure is right for you. Businesses can take the form of a sole proprietorship, partnership, corporations or joint-ventures. Our clients include small and medium business owners, physicians, dentists, optometrists, chiropractors, physiotherapists, and not-for-profits. There is no one size fits all, and at Anurag Gupta Professional Corporation, we are committed to providing clients with sound legal advice at an affordable price. Client satisfaction is of paramount importance.
A well structured business formation from the get-go will allow you to plan for the road ahead.
A sole proprietorship is a type of business entity having no separate legal existence from its owner and is the simplest and cheapest method of operating a business. The owner personally pays income taxes on the profits of the business. Business losses may be offset against your personal income. The primary disadvantage is that the business owner has unlimited personal liability – all debts of the business are debts of the owner, which means the owner’s personal assets can be seized to satisfy business debts. While the simplest form, it may not be the best vehicle to operate a business.
A partnership is similar to sole proprietorship except more than one owner (partners) 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. It is strongly recommended that partners enter into a partnership agreement to prevent future problems, particularly if your not equal partners. The legislation states that partners share the debts and profits equally absent an agreement.
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 a sole proprietorship/partnership with a potential tax deferral under certain conditions. Corporations offer other tax advantages which may result in hundreds of thousands of dollars of tax savings. Each taxpayer has a lifetime capital gains exemption of $800,000. On the sale the shares of the corporation, a shareholder may be able to save thousand of dollars in taxes. The exemption can be multiplied among family members under effective tax planning strategies, resulting in significant tax savings. An existing business with a net worth of $1 to $5 million may have drastic tax consequences to the business owner if proper planning does not currently exist. Neither a sole proprietorship nor partnership offer the capital gains exemption unless a restructuring of your business is implemented.
There is no one “form” that fits everyone. If you are looking to start a new business, you should carefully consider your options before selling that next widget, not only from a liability perspective but also have an effective tax plan.