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1. there are three kinds of partnerships:( z; t/ l# ~ @) j% P
General Partnership, Limited Partnership, and Public-Private Partnership) S' T, p8 u# {' Z# z- D: U3 ?: H: _
See details on http://www.alberta-canada.com/investlocate/1012.html
: r+ r. Q7 a. Y, M7 a3 y2. See the article:0 U( n. X- F1 p0 W2 N' ~0 y
PROPRIETORSHIP, PARTNERSHIP AND INCORPORATION
" Y( ]- |" J) Z% {4 X L- Z! QBy Jay Chauhan7 ]0 V2 X3 \0 ^9 D! O; u
LEGAL FORMS OF BUSINESS ORGANIZATIONS
# ?) N. c. ~* u7 W8 g3 |There are three basic ways in which a business organization can exist, namely a sole
1 A" X5 t% s+ I" `2 Lproprietorship, a partnership, and a corporation. A sole proprietorship is where one person0 r# z" r$ b1 l0 b" x& H, V
using his own name or any other name, conducts business. In a partnership, there are two or' V( T0 e( `1 X# b# w
more persons carrying on a business activity under their own names or the name of a
: P% q) o* Z" I* p$ k9 xpartnership. Incorporations are for legal purposes and entirely separate, legal entity created by
( g( T& m) \# J1 k4 Jlaw and can be used by a single person or more persons together.7 T' h6 t* } u4 a
SOLE PROPRIETORSHIP
7 F# e% p& i1 _% NIf a one-man operation uses a name different that his own, he must register this name under the
7 e( A- M6 y0 G! pPartnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it; [" l/ ]: z7 M9 O
can be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the
# C. k+ ]) }* ?individual remains personally liable and his home and personal assets can be used to satisfy a1 m. j1 j0 y5 j! c: [$ Z6 P+ ?
judgement. The registration lasts for five years, and must be renewed at expiry.4 J4 y6 Z3 z) f' r" @4 l
It is possible for a sole proprietor to call his business by a name such as "ABC Company". The
: i" y6 F+ P* l! {fact that the word "company" is used does not provide any extra legal protection as! t6 t) y: Y7 { o8 ~
incorporation does, and this is commonly misunderstood by many. For tax and legal purposes,
* k" A9 u. |* D) U' Tthe sole proprietor is the same as the individual, even if he uses a different name.. j) f- U' a& j' m1 i
PARTNERSHIP
2 ?( m- F' q6 G) h$ E' TWhere two or more persons are engaged in a business activity, it is known as a partnership.; b3 M4 \+ o. S5 P
Like a sole proprietorship, they must register the business name if names other than their own1 {0 e5 b+ s2 V
are being used to conduct the business activity. The same provisions of registration apply and- v* b& E0 p* q: C
each partner must sign this form and such declaration lasts five years. Here again, if the word& a7 L# s( g7 N# \9 D0 r9 |
"company" is used at the end of the name, it provides no extra protection, like incorporation.! a( f' e; W6 k) G2 w* _
Each partner remains fully liable for the debts of the partnership, regardless of which partner* N. {/ A3 Q5 w, [& I8 J
incurred the liability. In case of financial difficulties, the judgement can be enforced against4 z# q( |% y9 ~" G/ Z3 I s
each and every partner and if any one partner does not have any monies, the other partner who
i ?2 P3 O+ Y2 p' ohas the property and personal belongings and a house, he would have to meet the liability.
+ l9 @0 D* g. w( y! ?5 z4 BEach partner is liable too pay tax on his share of the profit made. For legal purposes, the4 n. `3 {$ ~, R' E
liability is full, despite the percentage of partnership interest.
/ {( s1 r- c; p% o( b24 b1 d* X5 ?4 F$ V! s6 G* D5 g. x
It is very desirable for the partners to have a partnership agreement, which sets out the basic7 B& B' h( P) ]# @! L! h! e
terms of the partnership arrangement, including what business will be conducted, profit and1 O6 ]9 j: q" A/ U1 s
loss sharing formula, whether the partnership will continue the death of a party, where the3 L4 F/ M9 p+ z/ `+ B' \' \0 [
account of the partnership will be maintained, and if any partner is to be employed full-time,
% i; D5 ^9 `# S9 z* W2 rwhat salary he may expect. If a partnership agreement is not provided, the provisions of the$ V) w" `" O( U% D6 U) P; [, T
Partnership Act will apply, and in such events, the partnership will dissolve, for example, on5 ?9 R3 m! ^: ]$ Y U
the death of a partner. The partnership agreement also would provide for a formula by which9 Z5 K/ A& P/ E8 h8 ]+ M% n
upon disagreement, a party could withdraw from the partnership. Where no agreement is
E& Y ]1 D6 o n) z* E$ A( }provided, any partner could simply register dissolution of partnership and terminate the
- i6 P [/ f- G2 d4 l5 W$ lpartnership arrangement. Legal advice is desirable in drafting a partnership agreement.
' H( K( U+ ?# u [4 M) I hIn case of failure of a partnership to register a business name, no action can be brought by the$ l3 c% q n+ {
partnership to sue a defendant, who fails to pay them.& L1 ^# y, v: h+ h" i# z
INCORPORATION
/ @; a; @$ B+ k8 M! A4 O: ?Incorporation is often called a limited company. When a corporate body is formed, it creates a3 P% }" }" }+ @" H+ W( j
separate legal person, and has a different legal existence than the person or persons who formed! P! f" V' V) g
that legal entity. A corporation may be identified by using the words "limited", "incorporated",' S1 ^+ q7 d/ m: C7 S
or "corporation".
1 N, G" n6 C) @3 u1 {( I7 ?The word "limited" correctly describes the idea of limited liability, when a corporation is
; d9 g) r& M1 I! O5 |- Uformed. Unlike the sole proprietorship and partnership when a corporation is formed, the
# n2 ~* r6 F0 z. @: i4 r2 uindividual or the persons forming it are only liable for the amount of investment made by them,
, N/ u9 R4 m4 S, d. K; Win the corporation. In case of financial problems arising, the judgment can be enforced only6 ?: e ?/ p1 M' ?5 p% R
against the assets and property owned by the corporation, and the assets of the individual and
; }* f% q" u7 U8 v# T6 mhis home cannot be touched. This is the most important reason for forming a corporation, as# }( l$ `; }, R
most people wish to protect their personal assets against the risks of the business.% G1 ` U5 ?+ j. W! z
A corporation offers a variety of tax planning benefits. The most common benefit derived is the
9 z6 c" q; d2 C/ m" ipossibility in a small company, of splitting the income between the husband and the wife.5 _0 [8 F# i9 a7 h0 a1 ?
Under the attribution rules of the Income Tax Act, the income derived by the wife is deemed to
* R _' F& H( Z" H5 D( J; t6 jbe that of the husband, but where a corporation is formed, and the wife works for the* n9 X& u# n6 o, S0 u- @& @
corporation, it is legally possible for the husband to divert a certain amount of income to the
6 T) c- @* t0 M- l4 h5 U4 @' `wife, provided that she is doing some work in the company.
5 r' B5 r. k9 W4 e" L/ h. {: YA corporation is also in effect, an estate-planning vehicle. By issuing common shares to' M% Y* Q" [6 ]8 f! y
children in trust, the growth value of the shares of the corporation can be transferred to the
* Y1 u+ [( m X1 d. v: Y' q' Kchildren without incurring inheritance taxes under Succession Duty Act, and Income Tax Act.. {0 M$ @" r: b
A corporation can be formed either under the Canada Business Corporations Act, or the
% q+ ]5 ?0 G6 q3 vProvincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
9 x& U4 h- \) g v( ], B" Kcompany is desirable where it may, in the future, have head offices in various provinces. A: |( ]: y0 d2 _+ ^3 \0 t
federal company does not require extra-provincial licenses to operate in different provinces. It. l3 ^* ]6 |3 G* |- e! n/ A
does require, however in Ontario, a Licence In Mortmain. This license is required when the) Z& f1 ~/ ?, x
company owns or rents property in Ontario. The Ontario corporation does not require such, s, F: o4 u. a0 j' ^! N6 I2 A
license to operate within Ontario, but may require extra-provincial license to operate in other+ k4 o( c3 b6 b4 ?
provinces, except Quebec.
, s6 S! A* f% t7 o! d7 b6 d+ }3
+ d$ W/ E. R& _6 `, A P: T9 M4 kIt is now possible for a one-man person to form incorporation and he may be the sole director
, X: v' B+ f) l4 Zalso the sole shareholder in that company. Where there are more shareholders, a difficult& Y. q* T! f" w" t8 @& }0 T5 I% ~: j
decision to make is the proportion of shares owned by each shareholder in the company. A 51%5 y5 A r1 M: v6 l
control usually gives the right to such shareholders to elect the board of directors and
6 B. p. @7 g1 o8 r# oaccordingly, exercise effective control of the operations of the business.
+ y. d7 t% ?2 z0 x- oThe directors of a company are responsible to the shareholders and must hold an annual
4 F( |$ z5 V: G' \1 t6 _( Ageneral meeting each year, even if there are only one or two shareholders, who might be the
" \3 s2 ~- L6 P2 Usame persons as the directors.3 `0 A' K) r# }( z; D3 T
Where there are two or more shareholders in a company, a buy-sell agreement or some
3 E$ w- q9 y- S( A4 |- j2 `shareholders agreement is very desirable. Such agreement can set out how a party can
, _" k7 X/ }6 C7 y! B$ w' Fwithdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.
. [" s/ v1 ~) h! H+ RThis agreement is commonly ignored by shareholders until a dispute arises, when it is usually
6 d8 a( |3 n' V- A9 Utoo late.4 R, L2 I3 u& q6 m( g8 [
Competent, legal advice is desirable in forming a company, as the procedure is not simple as
# a4 z. s0 q* y% b, b5 O8 }the registration of partnership or proprietorship is.
8 u# V2 a3 ?: |( `Chauhan & Associates
: ^; Z6 Q4 Y6 { _3 S0 ABarristers and Solicitors
3 p( v, ^5 Y ?( ^9 W330 Hwy. No. 7 East, Suite 309
4 O% ~3 Z% H. ]6 F; yRichmond Hill, Ontario4 C% a6 v! q' x, H/ Q' _
L4B 3P8
8 i* |) L) m0 {/ `7 R" b4 w$ V2 q: PTel. (905) 771-1235
, ~* f' \$ I3 ?Fax (905) 771-1237
3 j1 a4 g; H& `# @$ F8 y4 M8 zEmail: globalmigrations@hotmail.com
: s! I, y2 S! V- C4
' I% q% b- P8 C; H0 z+ _PARTNERSHIP MEMO
, Z5 Q- D6 s* Q+ BREGISTRATION REQUIREMENTS
! h- s( M$ o. p* ?; F' O* zWhere two or more persons are engaged in a business activity, it is known as a
f1 A; M6 `+ ]partnership. They must register the business name if names other than their own names are1 l8 a6 L' Q$ G- H b( Q6 l
being used to conduct the business activity. Partners must sign the declaration form.
$ a$ z' b! |- TRegistration is valid for 5 years. If the partnership is not registered no action can be brought by8 f ~$ h8 ^7 Y' {1 z5 O
the partnership against a debtor for recovery of money until the partnership is registered.5 v) r: e1 x6 Y
If you want me to assist you in the preparation or registration or partnership please let/ d/ h+ y F; O$ n/ N$ E
me know.. Q- C6 N+ \& Q: T" o
LIABILITY
3 l& ]7 a4 x) L1 x+ ~Each partner remains fully liable for the debts of the partnership, regardless of which& M2 f$ B' i! d
partner incurred the liability. In the event of financial difficulties, a judgment can be enforced1 j/ f: D) I% \% e
against each and every partner. If any one partner does not have nay money, the other partner
' z. c5 x2 m8 i7 I; ?. ?8 `: ~! L7 Qwho has the property and personal belongings and a house would have to meet the liability.
0 I& _2 D7 i* M! Q% z% c; WUsing the name company for a partnership does not eliminate personal liability." O% W0 k6 L7 Z
TAX
7 F. m0 k2 R% xEach partner is liable to pay tax on his share of the profit made. Expenses are deducted( ?4 }7 M5 f1 A* Y
from the profit and the share of net income of each partner is declared on his tax return.
# ]" E1 y) D" ~- \9 X! ZPartnership can have a different fiscal year than the calendar year.* Q- C0 H/ E9 ^( L
AGREEMENT
' j9 x: a, [9 q. Y/ m: R9 aIt is very desirable for the partners to have a partnership agreement. It should set out/ I# T* P, F3 K
the basic terms of the partnership arrangement, including what business will be conducted,7 ` H) J' v- U1 Q
profit and loss sharing formula, whether the partnership will continue on the death of a party,8 _8 n/ o" C/ Z( H# k& d
where the account of the partnership will be maintained, and if any partner is to be employed
4 h/ Q8 ^) `# F3 g* I7 @full-time, what salary he may expect. If a partnership agreement is not provided, the provisions8 L3 R7 G$ B& l; A( D( Q! J5 p4 V
of the Partnership act will apply. Without an agreement the partnership would dissolve on the# S% ]( u8 G( n; a1 C; _3 p7 g
death of a partner. The partnership agreement should also provide for a formula by which in
( T4 R9 F) o4 x+ Ithe event of disagreement a party can withdraw from the partnership. Where no agreement is
2 ~" P) D0 O9 U. F+ U' f: lprovided, any partner could simply register dissolution of partnership and terminate the2 b7 N k) w0 Y) j# J5 ?9 E& D- c
partnership arrangement. Legal advice is desirable in drafting a partnership agreement., I* Y3 t$ x; k, F4 B, f& h/ Y4 E9 c
INCORPORATION3 S6 g+ g$ F9 e" i ^. ?# M
Incorporation is often referred to as a limited company. When a limited company is( F& {. J$ A9 }
formed, it creates a separate legal person, and has a different legal existence. A corporation z- S) M1 d# w; }3 E+ Y
may be identified by the use of the words "limited", "incorporated", or "corporation".# {+ U5 f5 h& ?( M
5
7 b6 O: f5 t8 Q9 {1 x. |. x0 ~% WThe word "limited" correctly describes the concept of limited liability of a corporation.. `) L4 G! ^' B. D
Unlike the sole proprietorship and partnership when a corporation is formed, the individual or2 z) V* h& A4 o7 O
the persons forming it are only liable for the amount of investment made by them in the
' g% C( ~% Q1 f& a8 TCorporation. In the event of financial problems arising, the judgment can be enforced only N( g: ]8 U/ |( b' H. X
against the assets and property owned by the corporation, and the assets of the individual and
+ y: E9 \8 I+ g% E# [his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.
! \' I1 q% a) W7 |0 u6 n) DThe most important reason for forming a corporation is to protect personal assets against the5 F5 W. `! D9 f0 {7 Q! Y, R
risks of the business.3 [1 n4 N& Y/ w7 f9 m7 u
It is now possible for a one-man person to form a corporation and he can be the sole/ p( ]6 N0 Q# b- D4 ?8 e
director and also the sole shareholder in that company.* x5 t+ r2 R% h& N0 A$ B* Y4 Y0 L
A corporation is more expensive but desirable for the protection of personal liability.9 `/ b( L' W" O
Jay Chauhan: F9 u! c/ z* j2 {4 E3 i+ l ~
Barrister and Solicitor t; m5 K3 S. w! P7 {
330 Highway 7 East, Suite 309
4 E8 q7 O4 I7 I" Z2 E( p. B, KRichmond Hill, Ontario' A( l+ B0 a4 a _
L4B 3P82 t! c% b# m o& ]. e! z9 X
Tel.: (905) 771-1235
- D9 n- |. R1 w8 V) U/ i) o, [4 KFax: (905) 771-1237
+ B5 _0 ^2 A% l' m) AEmail: globalmigrations@hotmail.com |
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