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1. there are three kinds of partnerships:1 {) Q/ R9 h0 `1 d' _' i, {2 V
General Partnership, Limited Partnership, and Public-Private Partnership
7 A! W" Z' _+ ]See details on http://www.alberta-canada.com/investlocate/1012.html$ s- q; E* B% S5 U
2. See the article:
0 ^9 i+ Z2 \! m$ KPROPRIETORSHIP, PARTNERSHIP AND INCORPORATION
1 i& I) z' n: x& z' m9 GBy Jay Chauhan$ ~) ?& s2 z* S9 y" P2 y
LEGAL FORMS OF BUSINESS ORGANIZATIONS% p9 c2 J. X4 v- Z& x
There are three basic ways in which a business organization can exist, namely a sole2 Q9 r l( I. B9 X
proprietorship, a partnership, and a corporation. A sole proprietorship is where one person" P% M7 D/ Z5 t$ v
using his own name or any other name, conducts business. In a partnership, there are two or
" h6 d4 D3 F ^ Y- r- w* U9 J! omore persons carrying on a business activity under their own names or the name of a
- K1 p' {7 a$ X8 t/ r1 V9 p8 Z" F% rpartnership. Incorporations are for legal purposes and entirely separate, legal entity created by
( R6 Y/ X- P" {' ~law and can be used by a single person or more persons together.) o7 G6 g8 {. ]+ v
SOLE PROPRIETORSHIP
- Q4 s& M5 O/ N9 IIf a one-man operation uses a name different that his own, he must register this name under the
9 k6 o b1 ]$ c. B6 ZPartnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it" F, i" D. k$ b9 ^
can be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the
9 d3 a. y0 i' d6 ?individual remains personally liable and his home and personal assets can be used to satisfy a8 ~9 a* W0 f2 W
judgement. The registration lasts for five years, and must be renewed at expiry.1 j) k- t9 ], N+ b5 f, g3 H4 o
It is possible for a sole proprietor to call his business by a name such as "ABC Company". The: O0 `2 C$ w* m" K3 l# q8 D" T' t
fact that the word "company" is used does not provide any extra legal protection as
2 t+ }/ ~' G4 }" Z8 qincorporation does, and this is commonly misunderstood by many. For tax and legal purposes,7 ^/ W% @2 _4 o/ ^# v
the sole proprietor is the same as the individual, even if he uses a different name.3 u( X- X0 q% j7 x5 A D
PARTNERSHIP
3 y; |' R2 `. C& q3 dWhere two or more persons are engaged in a business activity, it is known as a partnership.
8 ^6 c% ?. b1 i' M1 HLike a sole proprietorship, they must register the business name if names other than their own
! W) L2 A7 a; R: {$ ^+ N; uare being used to conduct the business activity. The same provisions of registration apply and1 g, r1 F, D' U" k
each partner must sign this form and such declaration lasts five years. Here again, if the word# N' {# K4 _: R; n0 H+ @% P3 i! R/ A
"company" is used at the end of the name, it provides no extra protection, like incorporation.$ c2 R9 ?. l5 Y+ r
Each partner remains fully liable for the debts of the partnership, regardless of which partner a7 G* b9 r1 X, V) V, f( Z- y2 ?! T
incurred the liability. In case of financial difficulties, the judgement can be enforced against
+ B# c) G: d, x# `4 Feach and every partner and if any one partner does not have any monies, the other partner who
* _! f5 R& r% q1 bhas the property and personal belongings and a house, he would have to meet the liability.
# f: e# O" d+ tEach partner is liable too pay tax on his share of the profit made. For legal purposes, the% ?/ k5 E0 k& h( ?( k
liability is full, despite the percentage of partnership interest.
' J) t, h* |2 P" \, u2
3 l% e& W" z; C) qIt is very desirable for the partners to have a partnership agreement, which sets out the basic
: X T9 j+ Q/ @terms of the partnership arrangement, including what business will be conducted, profit and
' B% [2 Z" A8 y O' _loss sharing formula, whether the partnership will continue the death of a party, where the( p6 c) F& Q( }3 i
account of the partnership will be maintained, and if any partner is to be employed full-time,# i! J- B( A$ r% J. g, O
what salary he may expect. If a partnership agreement is not provided, the provisions of the q' [, H) A* \9 l. c* b" P" Q0 h+ v
Partnership Act will apply, and in such events, the partnership will dissolve, for example, on
: j6 H5 R4 s# ]4 j- i1 Dthe death of a partner. The partnership agreement also would provide for a formula by which3 R( J9 M. Z5 i% ?
upon disagreement, a party could withdraw from the partnership. Where no agreement is6 ~# {! C! P* v
provided, any partner could simply register dissolution of partnership and terminate the
+ V x% V% O; C& T- S( x4 lpartnership arrangement. Legal advice is desirable in drafting a partnership agreement.. H# J% [: a5 B6 Y
In case of failure of a partnership to register a business name, no action can be brought by the# B4 e: g) G1 V/ M6 f
partnership to sue a defendant, who fails to pay them.8 T% ?$ s. e, Y# v
INCORPORATION6 O$ e: q6 K0 M* i' `0 p
Incorporation is often called a limited company. When a corporate body is formed, it creates a* K' k0 w! Q/ n9 u0 E
separate legal person, and has a different legal existence than the person or persons who formed
: _: o- a3 N% P. Y9 Z4 xthat legal entity. A corporation may be identified by using the words "limited", "incorporated",) F* i% J$ h. y$ ]& x2 ?) y
or "corporation".$ R# Q. k5 G0 Y r. p5 e
The word "limited" correctly describes the idea of limited liability, when a corporation is
. @* N4 c/ q' A( p, K6 ^formed. Unlike the sole proprietorship and partnership when a corporation is formed, the
# k6 a, P/ a; n6 ]* findividual or the persons forming it are only liable for the amount of investment made by them,
1 E) }8 O, \. P6 lin the corporation. In case of financial problems arising, the judgment can be enforced only
' h/ T" h* r# B4 h' E. E2 aagainst the assets and property owned by the corporation, and the assets of the individual and
6 A, {9 V) ]6 y2 p2 V3 Uhis home cannot be touched. This is the most important reason for forming a corporation, as
) U0 L z% h- e: T! d* fmost people wish to protect their personal assets against the risks of the business.+ R- C$ h Z8 N) e* v* D8 X
A corporation offers a variety of tax planning benefits. The most common benefit derived is the% b0 { D3 J2 F$ u |" X* Z3 C& D' l; A
possibility in a small company, of splitting the income between the husband and the wife.: g% N) c5 i1 G% i% ^
Under the attribution rules of the Income Tax Act, the income derived by the wife is deemed to! i: f! W& [: a: ?9 U
be that of the husband, but where a corporation is formed, and the wife works for the0 l" L* l6 |0 b- U
corporation, it is legally possible for the husband to divert a certain amount of income to the
! r! H4 e6 ^7 Z8 z0 {' D# {% wwife, provided that she is doing some work in the company.
, w. }0 B) a% G" c( A0 `$ ]% DA corporation is also in effect, an estate-planning vehicle. By issuing common shares to
" K1 Q7 T: k, D* M2 qchildren in trust, the growth value of the shares of the corporation can be transferred to the% I- o' Y5 H) }. J
children without incurring inheritance taxes under Succession Duty Act, and Income Tax Act.* G( L5 U) f8 \4 Y
A corporation can be formed either under the Canada Business Corporations Act, or the
7 m, {5 {7 A, e. LProvincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
0 h2 ~3 I6 X- @company is desirable where it may, in the future, have head offices in various provinces. A9 \/ W$ a, X& q1 R; G
federal company does not require extra-provincial licenses to operate in different provinces. It
1 D' u3 J) X4 Odoes require, however in Ontario, a Licence In Mortmain. This license is required when the' }' C. k/ g3 x. A5 y
company owns or rents property in Ontario. The Ontario corporation does not require such3 m$ l7 Q, E6 i8 v, k# k' c3 h
license to operate within Ontario, but may require extra-provincial license to operate in other
3 z P3 c2 s5 g$ s' o5 k/ h% Nprovinces, except Quebec.
/ x% Q+ E# y4 r9 u, L3" ]5 w' J: L& Q1 _8 i8 Z5 V0 Q# g
It is now possible for a one-man person to form incorporation and he may be the sole director& t) B) \0 O' S% s
also the sole shareholder in that company. Where there are more shareholders, a difficult
: s5 m8 s: a/ ^4 \" T1 Sdecision to make is the proportion of shares owned by each shareholder in the company. A 51%
* i. K! M& M1 r, Q4 [control usually gives the right to such shareholders to elect the board of directors and6 D% L- c- t. T1 \
accordingly, exercise effective control of the operations of the business.% T5 ^# X. W7 @
The directors of a company are responsible to the shareholders and must hold an annual
# u8 Q' E6 q. ?8 m2 Vgeneral meeting each year, even if there are only one or two shareholders, who might be the
2 k: c# p7 S- F" Gsame persons as the directors.
4 d A# f3 P/ X7 Y" i) jWhere there are two or more shareholders in a company, a buy-sell agreement or some
; i L% [) O) \- `" ?shareholders agreement is very desirable. Such agreement can set out how a party can' K& K! x$ `9 ^* v% [
withdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.
; b( n. i+ b3 gThis agreement is commonly ignored by shareholders until a dispute arises, when it is usually
. Q' d# o% h) e2 ]( z! g3 z- otoo late. K$ Z! I. N/ C. O% q# ^7 R7 L |
Competent, legal advice is desirable in forming a company, as the procedure is not simple as5 W3 a9 B$ \" I* L, O
the registration of partnership or proprietorship is.
8 i2 L/ S" i5 g/ Z- {' ~Chauhan & Associates
# q9 p% r0 f9 D& tBarristers and Solicitors, O* d4 P: D2 D/ N! j _6 |+ _
330 Hwy. No. 7 East, Suite 309
9 X4 A6 ?) k: X* @% h( jRichmond Hill, Ontario
$ X9 S: n) Y+ \L4B 3P86 V) n) [' W$ I' T1 B. K( G7 \* {; y
Tel. (905) 771-1235& T' ~4 j0 C; @/ |5 j! l6 H* F5 }/ [
Fax (905) 771-1237
8 p. S L8 W7 s; BEmail: globalmigrations@hotmail.com
8 |: x/ b5 h. s4' l4 Y- j% U6 |0 H: S
PARTNERSHIP MEMO
, D# Y+ ~3 ^+ X) S! t) FREGISTRATION REQUIREMENTS
, }0 b$ R# I |- U8 G; fWhere two or more persons are engaged in a business activity, it is known as a: F# s, s& G- `( h D& d
partnership. They must register the business name if names other than their own names are
& T, C3 t$ F0 R; b; }6 T( I$ @being used to conduct the business activity. Partners must sign the declaration form.
' H5 H, b4 {- t3 X2 Z/ c7 mRegistration is valid for 5 years. If the partnership is not registered no action can be brought by9 X3 k/ p) T) f* P- X& H; g
the partnership against a debtor for recovery of money until the partnership is registered.
5 a5 m* Y' j" L/ P$ U3 T$ p1 jIf you want me to assist you in the preparation or registration or partnership please let
/ L; }, Y8 m H4 S4 [; Nme know.' D; `$ p# |: w: [& F$ V4 `" ~; s
LIABILITY" h1 z% L* ^4 p0 ?* s0 t: ^
Each partner remains fully liable for the debts of the partnership, regardless of which
2 }) @9 ^$ ^/ Kpartner incurred the liability. In the event of financial difficulties, a judgment can be enforced$ Z; f5 e1 y: }7 [
against each and every partner. If any one partner does not have nay money, the other partner7 V2 B' Y( d/ z7 A- ^
who has the property and personal belongings and a house would have to meet the liability.
" Y$ L5 g* d# ~! Z- d' HUsing the name company for a partnership does not eliminate personal liability.+ |6 \, ^4 u- c% v; [7 n) Q O( j3 F
TAX
& X: H3 D7 y; c; a3 BEach partner is liable to pay tax on his share of the profit made. Expenses are deducted
1 F; A6 T# k: w8 L1 cfrom the profit and the share of net income of each partner is declared on his tax return.
- ~& Q6 U8 n9 M Q% F) kPartnership can have a different fiscal year than the calendar year.
* M ~( v2 t: X! b) n8 q4 I/ M5 z) JAGREEMENT3 S6 G: U5 a" U; a# g" W$ L2 a
It is very desirable for the partners to have a partnership agreement. It should set out+ X5 ]$ T7 y# Y- y
the basic terms of the partnership arrangement, including what business will be conducted,
' C; `, j& I( Y; g/ b- Qprofit and loss sharing formula, whether the partnership will continue on the death of a party,& p& X4 s8 |, k1 E7 X" ~
where the account of the partnership will be maintained, and if any partner is to be employed9 E) w1 Q+ S1 c" P5 k: U
full-time, what salary he may expect. If a partnership agreement is not provided, the provisions0 N$ Z/ Q% t# R# U# |
of the Partnership act will apply. Without an agreement the partnership would dissolve on the
+ g m/ b5 T! ?6 M* U4 G0 H. k& adeath of a partner. The partnership agreement should also provide for a formula by which in
$ j# X S' j( E3 Ethe event of disagreement a party can withdraw from the partnership. Where no agreement is
3 ?4 I8 @1 j# q1 e3 j/ W- p; R, }: u# h* oprovided, any partner could simply register dissolution of partnership and terminate the
4 j3 d6 E& U. A( D, ypartnership arrangement. Legal advice is desirable in drafting a partnership agreement.
; K- M8 ~3 _/ w A: p8 zINCORPORATION
: _" N$ p7 a( C: J- X& A. _$ S5 S6 i( fIncorporation is often referred to as a limited company. When a limited company is
: B9 E1 g' j P) m# s* `0 }formed, it creates a separate legal person, and has a different legal existence. A corporation/ p0 J- J% r$ Z- R3 }
may be identified by the use of the words "limited", "incorporated", or "corporation".! D7 W# ]. Y& n7 u6 @" G- X
5
1 ~3 _5 e( w- y' ~' S5 v' P. \5 sThe word "limited" correctly describes the concept of limited liability of a corporation.
4 Z5 ^$ Y- i6 b' J K: Z# {Unlike the sole proprietorship and partnership when a corporation is formed, the individual or0 q) a: o e( n* r
the persons forming it are only liable for the amount of investment made by them in the
7 T4 ~! o4 e; o/ ?& {$ x; WCorporation. In the event of financial problems arising, the judgment can be enforced only
3 |& r" B6 }) N( e9 r. Magainst the assets and property owned by the corporation, and the assets of the individual and7 M s, L% E4 ~4 N, {/ ]
his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.
8 c4 c) }8 u! k6 }9 D, R }! wThe most important reason for forming a corporation is to protect personal assets against the
! v# X% `& j' c) E9 ]8 Orisks of the business.5 R2 Z+ P( T& \9 O( f
It is now possible for a one-man person to form a corporation and he can be the sole
: K) `+ M9 q* W- H& O, s0 E3 pdirector and also the sole shareholder in that company.5 }. Z+ h% k2 T8 ~- h7 }/ T
A corporation is more expensive but desirable for the protection of personal liability.! m( r" ~! w4 b, \
Jay Chauhan
; c: B) Y' [7 D: t+ Z/ n, w9 I. m( YBarrister and Solicitor
" a1 @" b: H& Z; t; q, d330 Highway 7 East, Suite 309
" h$ `/ f4 I0 U- jRichmond Hill, Ontario7 C. P1 B/ g+ A; v7 e5 l6 X
L4B 3P8
9 H% B" m. U0 `9 i. F% XTel.: (905) 771-1235
" C9 V+ O& U" i( z" [7 pFax: (905) 771-1237
: J. @9 y+ {6 C/ MEmail: globalmigrations@hotmail.com |
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