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1. there are three kinds of partnerships:; U$ ^4 j. D H$ O: u$ u3 c
General Partnership, Limited Partnership, and Public-Private Partnership/ E0 g! G; f& A9 m
See details on http://www.alberta-canada.com/investlocate/1012.html
% j1 E6 d5 r$ ~1 {7 W0 G' D2. See the article:
0 @- y) F4 Q- P; K0 ~PROPRIETORSHIP, PARTNERSHIP AND INCORPORATION
+ z" X( B6 {. x& `* J0 Y5 c& tBy Jay Chauhan- A C* w* {: N6 H
LEGAL FORMS OF BUSINESS ORGANIZATIONS |7 A- ]) |1 M1 e+ r
There are three basic ways in which a business organization can exist, namely a sole
) o: b6 t( M* J: g1 a4 sproprietorship, a partnership, and a corporation. A sole proprietorship is where one person9 e1 n9 N, U. z' G0 x* ~
using his own name or any other name, conducts business. In a partnership, there are two or
& z! N$ G( M, ]1 a) m" H4 E& vmore persons carrying on a business activity under their own names or the name of a9 ^1 _7 f! f- r7 a/ S* p
partnership. Incorporations are for legal purposes and entirely separate, legal entity created by
/ ~3 g+ Y8 h" t' }' y2 Slaw and can be used by a single person or more persons together.
, T5 ~6 ~) y# z! G, ~" y2 aSOLE PROPRIETORSHIP* e+ E- d* D4 b5 ~9 G5 ]
If a one-man operation uses a name different that his own, he must register this name under the2 ^* [1 z1 n5 \0 P# b' |. z3 z" P" i/ x
Partnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it( B. ]' d# g$ O8 ^
can be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the
2 t j5 n! g) U* v7 V" Z: L1 F+ `individual remains personally liable and his home and personal assets can be used to satisfy a
! f$ z* H" M" G! |! Ujudgement. The registration lasts for five years, and must be renewed at expiry.
4 }6 Q! R) X+ L* ^It is possible for a sole proprietor to call his business by a name such as "ABC Company". The
# @( I4 K2 Y5 w% l- G% ?7 |; ufact that the word "company" is used does not provide any extra legal protection as6 V4 H& v+ k9 a' c6 u+ R
incorporation does, and this is commonly misunderstood by many. For tax and legal purposes,
* m% i0 I. w2 q1 |8 qthe sole proprietor is the same as the individual, even if he uses a different name.& `# j) S/ M+ a
PARTNERSHIP, f0 L. x) T, P- f B1 {; w
Where two or more persons are engaged in a business activity, it is known as a partnership.- L1 k; N( a# S/ [; a: {
Like a sole proprietorship, they must register the business name if names other than their own
. J( e) T& B( r: xare being used to conduct the business activity. The same provisions of registration apply and" l9 A: Z+ c- L% P9 @6 I) @
each partner must sign this form and such declaration lasts five years. Here again, if the word
7 c0 w9 T7 I1 h" A: N"company" is used at the end of the name, it provides no extra protection, like incorporation.. r. B1 @7 {0 G8 ?9 ^/ }
Each partner remains fully liable for the debts of the partnership, regardless of which partner& J6 k H( V, R6 {; ^$ O
incurred the liability. In case of financial difficulties, the judgement can be enforced against: G8 D# z9 [3 o G8 Y. i
each and every partner and if any one partner does not have any monies, the other partner who- A$ j7 z8 E0 o7 n9 s# c$ k
has the property and personal belongings and a house, he would have to meet the liability.
1 g$ ]+ v2 S$ E9 B" m# }5 TEach partner is liable too pay tax on his share of the profit made. For legal purposes, the; T1 B4 g$ U' q5 H( E! B) d
liability is full, despite the percentage of partnership interest.
9 s. ~5 Y/ H4 Q' Q2
9 ~5 `$ p! V; \It is very desirable for the partners to have a partnership agreement, which sets out the basic( J' E- v; n4 m) G6 [! E+ U- v. R, g3 I
terms of the partnership arrangement, including what business will be conducted, profit and
5 c' _6 L1 i' m9 u. c$ \loss sharing formula, whether the partnership will continue the death of a party, where the8 o2 O5 R S0 V
account of the partnership will be maintained, and if any partner is to be employed full-time,3 \! T% W- Z# w, m6 [, M# y. s; e
what salary he may expect. If a partnership agreement is not provided, the provisions of the
2 Q- U" M! z0 J! gPartnership Act will apply, and in such events, the partnership will dissolve, for example, on+ }7 H0 y+ g7 A: l
the death of a partner. The partnership agreement also would provide for a formula by which3 W: i3 O T1 @) o6 {4 e
upon disagreement, a party could withdraw from the partnership. Where no agreement is' d: K8 l* Y% M, Y/ n
provided, any partner could simply register dissolution of partnership and terminate the3 L, j% g) ^( a6 K
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.: I7 t) [7 I/ K/ n! i2 M; r+ B1 E
In case of failure of a partnership to register a business name, no action can be brought by the8 t* D9 C' q- [' G- |( O& w
partnership to sue a defendant, who fails to pay them.
5 }3 x' }8 b2 cINCORPORATION' |* P, n2 v }& D" W k0 n
Incorporation is often called a limited company. When a corporate body is formed, it creates a& j# ?- Y3 y1 A% D3 I, H. m
separate legal person, and has a different legal existence than the person or persons who formed" D& y1 ?. S" g4 O
that legal entity. A corporation may be identified by using the words "limited", "incorporated",
& d# |3 I* c, T( ~+ o/ P+ l% ?or "corporation".
) {$ ^( o2 c9 BThe word "limited" correctly describes the idea of limited liability, when a corporation is% ~, V3 B- \: y3 [" i
formed. Unlike the sole proprietorship and partnership when a corporation is formed, the/ z0 A6 s5 [$ P
individual or the persons forming it are only liable for the amount of investment made by them,1 U. g. A5 L6 e. g6 N. u
in the corporation. In case of financial problems arising, the judgment can be enforced only
: A% R; e/ Z1 P, y' K+ n& `8 d/ Aagainst the assets and property owned by the corporation, and the assets of the individual and
( K+ G" x7 a5 e9 C; this home cannot be touched. This is the most important reason for forming a corporation, as
7 h5 r s* N" J3 Qmost people wish to protect their personal assets against the risks of the business.
3 y; t$ ]/ Q5 y) x! T ~5 G5 OA corporation offers a variety of tax planning benefits. The most common benefit derived is the
- k; e' b/ A3 `8 _: r' fpossibility in a small company, of splitting the income between the husband and the wife.
9 u0 b+ U8 ~# S/ P2 zUnder the attribution rules of the Income Tax Act, the income derived by the wife is deemed to
7 n/ v# s% M4 j& y. B6 Rbe that of the husband, but where a corporation is formed, and the wife works for the3 T8 x2 d2 a1 T0 F/ A' I
corporation, it is legally possible for the husband to divert a certain amount of income to the. ]. C8 A' V8 y5 h, D$ j
wife, provided that she is doing some work in the company.0 L8 u- s {. i5 m( |6 L
A corporation is also in effect, an estate-planning vehicle. By issuing common shares to0 L+ u. z, a6 |: f) G' y
children in trust, the growth value of the shares of the corporation can be transferred to the% b+ \+ `3 ?0 ^ j% C1 Q
children without incurring inheritance taxes under Succession Duty Act, and Income Tax Act.
( w- x7 A, R/ q5 X$ cA corporation can be formed either under the Canada Business Corporations Act, or the
( l: b A2 V3 Q, K' M) V+ mProvincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
7 v9 l. q7 s) Ucompany is desirable where it may, in the future, have head offices in various provinces. A$ ~5 h& L3 ]1 c: ?0 \4 a6 O
federal company does not require extra-provincial licenses to operate in different provinces. It
5 K+ S" q( ~! `8 adoes require, however in Ontario, a Licence In Mortmain. This license is required when the
: z3 p- s4 K8 L/ G! E7 F6 a4 kcompany owns or rents property in Ontario. The Ontario corporation does not require such9 m5 y7 }1 R9 `
license to operate within Ontario, but may require extra-provincial license to operate in other
# h T2 y7 p, O8 Wprovinces, except Quebec.* d. [& l6 {2 p( n( _/ a
3- O# D5 V7 o' _
It is now possible for a one-man person to form incorporation and he may be the sole director) A! b' b( U2 W L# N$ r; w
also the sole shareholder in that company. Where there are more shareholders, a difficult2 R: o/ _! `3 @! h3 T# x
decision to make is the proportion of shares owned by each shareholder in the company. A 51%4 {( o6 s0 m# f. h6 ]: {6 m4 T$ r
control usually gives the right to such shareholders to elect the board of directors and# Z. M1 E/ |0 S2 M, i
accordingly, exercise effective control of the operations of the business.. |% d# d& Z- G/ R% a
The directors of a company are responsible to the shareholders and must hold an annual
. O! s; E) b* T$ h3 hgeneral meeting each year, even if there are only one or two shareholders, who might be the0 |+ l3 R+ h- g& h& F* i9 ^6 s
same persons as the directors.! R$ ^5 \' `# O
Where there are two or more shareholders in a company, a buy-sell agreement or some' b0 V- G# i% d9 |" c! H8 b5 ]1 L
shareholders agreement is very desirable. Such agreement can set out how a party can5 u$ l l, K+ W0 L
withdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.
* H5 Z3 r: j- d. h5 PThis agreement is commonly ignored by shareholders until a dispute arises, when it is usually3 ^$ a! h& U2 [# L" B' o4 n
too late.9 d, p+ S7 W- [4 b; f$ E# v
Competent, legal advice is desirable in forming a company, as the procedure is not simple as9 H* C3 a# ]! D8 `8 p& O; k* z
the registration of partnership or proprietorship is.& E3 O, \$ T$ m" s. g
Chauhan & Associates0 L X9 d/ G6 v2 _7 L% [3 m
Barristers and Solicitors
( E. D: z$ w7 D/ F9 u# u5 Z4 D. |330 Hwy. No. 7 East, Suite 309
7 q) p. Y) V. `3 i2 aRichmond Hill, Ontario
& K4 M: ^3 A' E4 LL4B 3P86 f0 V3 O9 b$ r ]
Tel. (905) 771-1235, _- `& G- {. E, B/ o6 N% H
Fax (905) 771-1237
# `. `& I; e; g7 aEmail: globalmigrations@hotmail.com3 t% o; {5 ]1 t0 P. X* m
4
. P* N7 \! N YPARTNERSHIP MEMO
. B+ Q) D- p0 L/ S+ AREGISTRATION REQUIREMENTS
! o8 M* l2 \1 T4 m, EWhere two or more persons are engaged in a business activity, it is known as a! p" Z1 ]' K+ G" T( U- T6 ^
partnership. They must register the business name if names other than their own names are( x8 _" V( m% y0 K0 c: Q
being used to conduct the business activity. Partners must sign the declaration form.
/ G+ H0 }6 D2 MRegistration is valid for 5 years. If the partnership is not registered no action can be brought by+ q. f/ U. S, n* h Q2 L) f2 K I, U
the partnership against a debtor for recovery of money until the partnership is registered.. ~3 J( E, a2 {' m
If you want me to assist you in the preparation or registration or partnership please let
: y Q. }5 W% e# }) Mme know., J1 ~ j. m) _' @1 @
LIABILITY4 N9 P/ l, z/ I( a$ s; N) Q% m
Each partner remains fully liable for the debts of the partnership, regardless of which
/ ~) ^- C$ x' L, _; {partner incurred the liability. In the event of financial difficulties, a judgment can be enforced
7 U" ]+ S3 e. @2 Y, u/ w2 _against each and every partner. If any one partner does not have nay money, the other partner
1 a5 v' m7 N6 I6 B) L2 ?who has the property and personal belongings and a house would have to meet the liability.
6 Y. [& V/ t7 K4 F1 i% r# v5 bUsing the name company for a partnership does not eliminate personal liability.
4 Z" v! L0 ~2 g0 l6 FTAX
9 F4 o7 j# M* fEach partner is liable to pay tax on his share of the profit made. Expenses are deducted
9 w3 W$ l% |, I, L0 q+ Tfrom the profit and the share of net income of each partner is declared on his tax return.5 e+ E# V7 Z3 n1 d) a3 y4 o
Partnership can have a different fiscal year than the calendar year.
- \" F8 z' y, @AGREEMENT
& j3 n' F6 x/ UIt is very desirable for the partners to have a partnership agreement. It should set out
, g- E! a- u% R* O1 x3 Sthe basic terms of the partnership arrangement, including what business will be conducted,
, L. o# I4 } A9 m. p1 Nprofit and loss sharing formula, whether the partnership will continue on the death of a party,2 g; x; d' | T6 i% w
where the account of the partnership will be maintained, and if any partner is to be employed
1 X0 ~7 \; {9 T/ c. I+ \8 bfull-time, what salary he may expect. If a partnership agreement is not provided, the provisions
" x; c9 u* a1 f( u3 g* eof the Partnership act will apply. Without an agreement the partnership would dissolve on the
/ U1 l" X7 F. w4 q0 qdeath of a partner. The partnership agreement should also provide for a formula by which in5 U) K9 _. c9 @: y9 }
the event of disagreement a party can withdraw from the partnership. Where no agreement is/ W: Y' t# y$ y3 h2 [( i9 h
provided, any partner could simply register dissolution of partnership and terminate the6 Z* H- ?. B, g1 d& K$ h2 l7 `
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.
6 G6 x( I" b6 I' W* CINCORPORATION* A2 O, j2 }# ~6 C' ^
Incorporation is often referred to as a limited company. When a limited company is
, U; D' c0 R7 R3 x; `! \formed, it creates a separate legal person, and has a different legal existence. A corporation8 f8 v& J& ]" m3 Q2 w
may be identified by the use of the words "limited", "incorporated", or "corporation".
, C1 e4 Y9 ?/ \1 p5
0 F: O/ M7 @, W/ a0 C* `+ |. b6 YThe word "limited" correctly describes the concept of limited liability of a corporation.
# Y( T, E5 X# s [Unlike the sole proprietorship and partnership when a corporation is formed, the individual or
# ~7 H5 ]2 F/ J: Z) |the persons forming it are only liable for the amount of investment made by them in the$ X. E/ b4 B, Y
Corporation. In the event of financial problems arising, the judgment can be enforced only6 ]+ e6 X4 F* C4 p. K3 C
against the assets and property owned by the corporation, and the assets of the individual and4 K$ U* m6 E/ ^ S/ p/ e: h$ C
his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.2 m) x3 d+ [! e8 ]
The most important reason for forming a corporation is to protect personal assets against the
9 ]: K4 u& f! f" P$ ?! D) mrisks of the business.8 w3 `+ o9 v8 ]5 Y2 x3 r
It is now possible for a one-man person to form a corporation and he can be the sole
3 {0 y7 @# i- \- `( z9 gdirector and also the sole shareholder in that company.
% C3 y# B$ U5 E) J% j* aA corporation is more expensive but desirable for the protection of personal liability.3 Y2 Q3 x' I+ r* \
Jay Chauhan
& E1 E" T" y+ B" u' b: \Barrister and Solicitor* Z1 ?( q# o) w, N4 U6 M1 t
330 Highway 7 East, Suite 309
" G( P# s8 I8 N; HRichmond Hill, Ontario
% c! d7 r# U- mL4B 3P8
5 \3 Y9 `& k& _( H: m$ }8 V( g1 STel.: (905) 771-1235
2 W/ M2 N6 A- b( x, b5 _3 hFax: (905) 771-1237( }3 A& S; G0 U" H/ J7 Z
Email: globalmigrations@hotmail.com |
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