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1. there are three kinds of partnerships:
/ n1 g' c0 u. V g1 ?: tGeneral Partnership, Limited Partnership, and Public-Private Partnership9 _& s3 ^, G+ l9 p- n1 {
See details on http://www.alberta-canada.com/investlocate/1012.html/ ^+ N+ J! o) m) ^
2. See the article:
$ @6 u4 C1 ?% O. h N$ VPROPRIETORSHIP, PARTNERSHIP AND INCORPORATION8 n/ o0 x- K+ o' _+ \! W
By Jay Chauhan
9 d7 i* {3 P& HLEGAL FORMS OF BUSINESS ORGANIZATIONS9 t3 w% C- p# ?. y
There are three basic ways in which a business organization can exist, namely a sole
* d/ N( P2 e" E5 D1 h6 J" Mproprietorship, a partnership, and a corporation. A sole proprietorship is where one person
* [0 x" @; {, V! X* B' Gusing his own name or any other name, conducts business. In a partnership, there are two or
t1 n) Q% P9 G2 r+ c1 qmore persons carrying on a business activity under their own names or the name of a3 Y8 A9 M* f; q# t* C( W
partnership. Incorporations are for legal purposes and entirely separate, legal entity created by
; M0 T! H: ~7 I" X& \' \law and can be used by a single person or more persons together.9 L7 a& |% I" e$ W8 S7 o
SOLE PROPRIETORSHIP+ O& c& @+ N5 a* o a! C7 m
If a one-man operation uses a name different that his own, he must register this name under the# B y" x5 J; ]" F4 s( X
Partnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it
6 g* X7 W: I. a1 wcan be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the6 a# ]" Z* ?, K, i: Z; X) f6 M
individual remains personally liable and his home and personal assets can be used to satisfy a
8 F& d6 y6 m8 [- U, J) |judgement. The registration lasts for five years, and must be renewed at expiry.
T1 Y* _- H5 o( G8 g; o' `, R% X3 kIt is possible for a sole proprietor to call his business by a name such as "ABC Company". The3 c% K, s/ g5 ]
fact that the word "company" is used does not provide any extra legal protection as
, b. C9 b/ D) |2 Y! A# @6 iincorporation does, and this is commonly misunderstood by many. For tax and legal purposes,
& D2 v5 ?: E" ~% s1 k2 pthe sole proprietor is the same as the individual, even if he uses a different name.. e$ j$ X& e* V! R
PARTNERSHIP+ _% y' ~" {" b
Where two or more persons are engaged in a business activity, it is known as a partnership.! h9 y9 r% j, ~. H% \6 h
Like a sole proprietorship, they must register the business name if names other than their own6 W. W, w$ s. m7 l y8 l5 ~
are being used to conduct the business activity. The same provisions of registration apply and
( E. F: u1 m teach partner must sign this form and such declaration lasts five years. Here again, if the word
0 l4 b* H/ j9 x# X4 k9 S! k"company" is used at the end of the name, it provides no extra protection, like incorporation.
0 G& R6 k$ X- ]% ^* jEach partner remains fully liable for the debts of the partnership, regardless of which partner
3 ~( }% u2 ?/ Vincurred the liability. In case of financial difficulties, the judgement can be enforced against% f4 n! L u( t* Z# x* ?/ S( r
each and every partner and if any one partner does not have any monies, the other partner who, e2 @: t! v( O" L6 [3 b' l% P
has the property and personal belongings and a house, he would have to meet the liability.! c" l, y# _4 u5 ^& K5 Q
Each partner is liable too pay tax on his share of the profit made. For legal purposes, the
" ]: ]4 k. Y, c, T6 R! h' cliability is full, despite the percentage of partnership interest.! b5 e; G7 {4 w
24 F$ @ ?# |5 m9 O
It is very desirable for the partners to have a partnership agreement, which sets out the basic8 R% v& V) s) F; |' q
terms of the partnership arrangement, including what business will be conducted, profit and
$ I2 Y0 ?* S: b/ n8 Q+ kloss sharing formula, whether the partnership will continue the death of a party, where the5 s( S# u3 `8 x/ H7 c
account of the partnership will be maintained, and if any partner is to be employed full-time,
$ ^ v6 F, @6 j% [" ^' R4 V, N3 X7 |what salary he may expect. If a partnership agreement is not provided, the provisions of the
L7 l }; ~3 C0 O+ aPartnership Act will apply, and in such events, the partnership will dissolve, for example, on
+ K' I' w/ s1 B2 y2 J7 Sthe death of a partner. The partnership agreement also would provide for a formula by which8 ]+ C. [' O9 x) S
upon disagreement, a party could withdraw from the partnership. Where no agreement is
" X& ?' ]" P# g' @, ^3 G# ?provided, any partner could simply register dissolution of partnership and terminate the
/ _: C' ^. x4 I* G I) s! s+ Jpartnership arrangement. Legal advice is desirable in drafting a partnership agreement.
( q2 h: o1 u# M$ b F- PIn case of failure of a partnership to register a business name, no action can be brought by the+ y1 P7 Z! i3 H: b, n6 Q |
partnership to sue a defendant, who fails to pay them., M& j+ T$ |% ^! F0 q ]. y0 @) c
INCORPORATION
& y7 Q$ D; @. {# ~3 sIncorporation is often called a limited company. When a corporate body is formed, it creates a5 r/ E4 e: v R
separate legal person, and has a different legal existence than the person or persons who formed) a5 ?1 u; @: Y: U8 v" m
that legal entity. A corporation may be identified by using the words "limited", "incorporated",' { v7 z/ k2 p% j
or "corporation".
* G: ?* N4 V! s8 E( ?The word "limited" correctly describes the idea of limited liability, when a corporation is
, Y% W; W0 {7 v @# Y# d8 Xformed. Unlike the sole proprietorship and partnership when a corporation is formed, the
- \' z3 X$ X# N0 m# o0 ?individual or the persons forming it are only liable for the amount of investment made by them,
3 K4 C4 l/ G& j/ c0 xin the corporation. In case of financial problems arising, the judgment can be enforced only
* J, b C8 n) r% ?against the assets and property owned by the corporation, and the assets of the individual and
+ v$ I4 B7 _1 L. v0 P6 Ohis home cannot be touched. This is the most important reason for forming a corporation, as- I% [9 G: S% O( V1 z
most people wish to protect their personal assets against the risks of the business.
& L: W v1 I# m- W8 e$ s9 ]A corporation offers a variety of tax planning benefits. The most common benefit derived is the- d! F1 h n8 [# T
possibility in a small company, of splitting the income between the husband and the wife." E4 n* O2 b G, s
Under the attribution rules of the Income Tax Act, the income derived by the wife is deemed to/ r* J& B/ p y9 x, `- Z
be that of the husband, but where a corporation is formed, and the wife works for the
. r4 J# |& U9 ]6 Dcorporation, it is legally possible for the husband to divert a certain amount of income to the
# w+ r( y% [2 O4 {! F6 S1 Z Twife, provided that she is doing some work in the company.5 C5 J J0 \- F1 o+ m6 g
A corporation is also in effect, an estate-planning vehicle. By issuing common shares to
W& u0 b3 d. jchildren in trust, the growth value of the shares of the corporation can be transferred to the. v$ D4 Q2 U* a6 W0 }3 p) g
children without incurring inheritance taxes under Succession Duty Act, and Income Tax Act.
/ o. t; ^# w# d _' yA corporation can be formed either under the Canada Business Corporations Act, or the
, F3 Z& `8 _- x, @Provincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
# l& z7 P% @( A8 Lcompany is desirable where it may, in the future, have head offices in various provinces. A
' R& g" v/ H; H, V nfederal company does not require extra-provincial licenses to operate in different provinces. It- f( W% j/ I) `. ?% a6 w
does require, however in Ontario, a Licence In Mortmain. This license is required when the$ r M F5 {6 J% ~: O
company owns or rents property in Ontario. The Ontario corporation does not require such
W2 U' V% M' y5 D7 U+ llicense to operate within Ontario, but may require extra-provincial license to operate in other
, e8 ]1 Q4 s8 H% Oprovinces, except Quebec.
& R2 r* f% X2 l1 T3' o% G: {1 L7 ?4 ]+ c/ ]( v+ ~2 ]
It is now possible for a one-man person to form incorporation and he may be the sole director
5 i. d" @& x- Ialso the sole shareholder in that company. Where there are more shareholders, a difficult
0 x5 Z4 W4 ~. f) R4 idecision to make is the proportion of shares owned by each shareholder in the company. A 51%, P& d5 W; s$ f( n; Y8 h6 k
control usually gives the right to such shareholders to elect the board of directors and
" l3 Q! ~5 C: v- A* ?9 S. m& D6 uaccordingly, exercise effective control of the operations of the business.2 N) F _( i* h/ P( w
The directors of a company are responsible to the shareholders and must hold an annual
1 _) Q! q: w4 n0 Mgeneral meeting each year, even if there are only one or two shareholders, who might be the$ O) S% a6 C8 J3 b% A
same persons as the directors.5 d, C' m; {# y) H7 [( D
Where there are two or more shareholders in a company, a buy-sell agreement or some
9 ~( h3 J- L( e% G' T$ eshareholders agreement is very desirable. Such agreement can set out how a party can/ Q2 s. z, |4 H8 k: X
withdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.
1 Z5 G+ \$ ?2 H# Z; w! uThis agreement is commonly ignored by shareholders until a dispute arises, when it is usually
& n2 M/ X) U, A" v- Dtoo late., V; J+ g; W9 A4 o/ D
Competent, legal advice is desirable in forming a company, as the procedure is not simple as
( Q# v! |1 P* e' O3 q( [" ythe registration of partnership or proprietorship is.
# B4 v* W3 H( ~( pChauhan & Associates
1 v+ D# ^5 }4 c$ F5 D, n% g$ pBarristers and Solicitors
$ ?! e- _8 f$ O: A; g330 Hwy. No. 7 East, Suite 309
" y3 U1 w9 @8 M, O" KRichmond Hill, Ontario s/ ]; V7 Y1 M' l$ u% y
L4B 3P8) H t. j6 r5 i: J7 n
Tel. (905) 771-1235. R: w2 S! X* f. g& G& ]3 p
Fax (905) 771-1237
% \; `7 F4 J. z1 W* FEmail: globalmigrations@hotmail.com" W3 t) R1 Z$ V, }
4
! t. `& A2 a) O. r8 ?# f+ x- `PARTNERSHIP MEMO
( ?# ~" c% E% {0 I* S& ^REGISTRATION REQUIREMENTS& `, V0 s' H |) s) V4 K' R
Where two or more persons are engaged in a business activity, it is known as a
- l2 t) b1 r7 @- J2 Q# a: upartnership. They must register the business name if names other than their own names are9 Z$ z% L4 d+ M t7 v* t
being used to conduct the business activity. Partners must sign the declaration form.: X( \ h0 g+ q3 q( C4 U I
Registration is valid for 5 years. If the partnership is not registered no action can be brought by% i3 k6 {( b9 f5 g
the partnership against a debtor for recovery of money until the partnership is registered.
* @& a" @& } K; w' `5 V- eIf you want me to assist you in the preparation or registration or partnership please let, F4 N* m$ ^3 S7 T5 D6 j) K
me know.
3 a* V7 u8 Y" l8 l0 sLIABILITY
3 e! Q9 @- i( s' TEach partner remains fully liable for the debts of the partnership, regardless of which
) M" z+ @% ~+ c0 I& qpartner incurred the liability. In the event of financial difficulties, a judgment can be enforced
# r6 H7 m3 R L1 i: V% sagainst each and every partner. If any one partner does not have nay money, the other partner
! N) E; O* ]% k& }$ X' b* uwho has the property and personal belongings and a house would have to meet the liability./ i6 y8 k e1 s3 w$ U5 d
Using the name company for a partnership does not eliminate personal liability.4 Y2 J( e z0 d+ y
TAX% P i6 B' b" x" Z M1 I- P {1 g
Each partner is liable to pay tax on his share of the profit made. Expenses are deducted
1 q- Q2 `' o m, ?from the profit and the share of net income of each partner is declared on his tax return.
; m7 Q- y o6 w* o: KPartnership can have a different fiscal year than the calendar year.
1 S0 b# k$ ?5 u9 MAGREEMENT
( q/ M) G5 ]) p& c& b- o: {/ N4 vIt is very desirable for the partners to have a partnership agreement. It should set out" u1 V. t" F( I: p2 ]
the basic terms of the partnership arrangement, including what business will be conducted,
$ a2 x0 u! {- W8 d+ m& @* E9 V* Eprofit and loss sharing formula, whether the partnership will continue on the death of a party,
! Q* w1 H) J0 c# n, J- kwhere the account of the partnership will be maintained, and if any partner is to be employed2 \' g5 ]6 ^& o& n8 b2 H" p
full-time, what salary he may expect. If a partnership agreement is not provided, the provisions
) y) B& w7 v" J5 R! v0 L, y# Kof the Partnership act will apply. Without an agreement the partnership would dissolve on the
0 t! \) E; N! M! ndeath of a partner. The partnership agreement should also provide for a formula by which in" ^, C& [/ X" S
the event of disagreement a party can withdraw from the partnership. Where no agreement is
0 L& _: `# }" c# g" j% Dprovided, any partner could simply register dissolution of partnership and terminate the1 |& B [( j9 k
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.. h4 G" W- n- ^3 [
INCORPORATION4 B7 m! f& j+ Q6 l
Incorporation is often referred to as a limited company. When a limited company is
! w, V7 x0 p" t& j& s% _9 Zformed, it creates a separate legal person, and has a different legal existence. A corporation; g! n! I, t9 p; B9 C2 e! Z! h
may be identified by the use of the words "limited", "incorporated", or "corporation".
( r( |' |. ?* X! o% o5 A, U5. I' X) C6 I U- C* m$ ]
The word "limited" correctly describes the concept of limited liability of a corporation.
, Z1 Z% c' K- eUnlike the sole proprietorship and partnership when a corporation is formed, the individual or
8 ~5 `! b2 l4 \0 Dthe persons forming it are only liable for the amount of investment made by them in the
" i7 p* i9 k, j- cCorporation. In the event of financial problems arising, the judgment can be enforced only. Z6 E" P6 y% |
against the assets and property owned by the corporation, and the assets of the individual and! Q2 Z! N3 T6 T, K8 [
his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.) u B* k. ^& ^$ G _ W. G$ S
The most important reason for forming a corporation is to protect personal assets against the9 |4 \% X1 F! @) h- C
risks of the business.2 m9 y, ?5 S( a) m1 A
It is now possible for a one-man person to form a corporation and he can be the sole5 B+ e9 B5 W$ T7 Q
director and also the sole shareholder in that company.
& X! O* g1 w2 Y$ `$ ?$ q3 LA corporation is more expensive but desirable for the protection of personal liability.
' U! t: z8 w) ~0 DJay Chauhan
8 @& I* D. D: d0 IBarrister and Solicitor
& Q$ G4 P: d# ^6 _8 u$ ^330 Highway 7 East, Suite 309
, [' K3 G5 I( B+ `Richmond Hill, Ontario2 S, Z3 k& o, g
L4B 3P82 r: d5 _! l2 `4 a/ [; |+ F, W4 d+ a
Tel.: (905) 771-1235# h; e: G1 t! C; {
Fax: (905) 771-1237: c9 K, `0 t- M% n4 A7 o- ?/ C$ h- N
Email: globalmigrations@hotmail.com |
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