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1. there are three kinds of partnerships:
% U2 d/ m2 L1 {& g7 Q% oGeneral Partnership, Limited Partnership, and Public-Private Partnership
' o }3 V8 F0 F* g* o0 eSee details on http://www.alberta-canada.com/investlocate/1012.html
( n( Q, c: r+ _' H& `5 `) R5 [# O6 |2. See the article:
( V, u7 J. k1 c' b wPROPRIETORSHIP, PARTNERSHIP AND INCORPORATION7 z- h% A; Y0 P! @5 B% I
By Jay Chauhan
1 n# ^0 e# s- R" w4 e. S3 iLEGAL FORMS OF BUSINESS ORGANIZATIONS8 K% S+ u% [/ r! X) _
There are three basic ways in which a business organization can exist, namely a sole
/ F, y4 g o( H0 B4 Jproprietorship, a partnership, and a corporation. A sole proprietorship is where one person# w5 I/ x" \# M: D
using his own name or any other name, conducts business. In a partnership, there are two or
6 o1 Q' X" S( s& ^2 vmore persons carrying on a business activity under their own names or the name of a
6 i, K- B6 s* y3 tpartnership. Incorporations are for legal purposes and entirely separate, legal entity created by
& G# M4 U4 Y( n' f* @8 g0 @# T9 `law and can be used by a single person or more persons together.
; n0 l1 c9 ]. c+ T/ v- v4 K& V; f; oSOLE PROPRIETORSHIP
: K Y' a! M; T% t( V7 d( t9 ^If a one-man operation uses a name different that his own, he must register this name under the' l0 v7 O* ?) u' T4 m
Partnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it1 I/ S: z* j: c9 U6 o$ }0 F& `
can be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the
+ C/ h( k) R4 F6 C0 a' sindividual remains personally liable and his home and personal assets can be used to satisfy a
4 Q7 ?/ y% d6 j: b* x9 G; fjudgement. The registration lasts for five years, and must be renewed at expiry., B6 H" s- k2 L% C2 O0 c
It is possible for a sole proprietor to call his business by a name such as "ABC Company". The' a3 \& S; n/ c) l2 ~, G
fact that the word "company" is used does not provide any extra legal protection as2 @- f; Y- A' x' _
incorporation does, and this is commonly misunderstood by many. For tax and legal purposes,8 @, d6 `* l3 F7 |
the sole proprietor is the same as the individual, even if he uses a different name.% t& `: _' m/ y" l4 Z8 u% I
PARTNERSHIP
9 G! k; t; ]) w6 D! `; r5 tWhere two or more persons are engaged in a business activity, it is known as a partnership.
) r9 c. ]; r: H: aLike a sole proprietorship, they must register the business name if names other than their own
4 ^& B* G# s& fare being used to conduct the business activity. The same provisions of registration apply and( J# ]- Z/ W; m1 M" E; N8 N% j
each partner must sign this form and such declaration lasts five years. Here again, if the word
/ g( ?, T6 }1 U8 N* o; a8 Z"company" is used at the end of the name, it provides no extra protection, like incorporation.) Z) D8 k& b( V, k% C
Each partner remains fully liable for the debts of the partnership, regardless of which partner
6 z* C* H/ {4 @0 b% _incurred the liability. In case of financial difficulties, the judgement can be enforced against' g! ~4 k! k5 E& i3 m5 N
each and every partner and if any one partner does not have any monies, the other partner who
5 q5 T/ [& K7 `5 A3 {- S2 x* P+ ghas the property and personal belongings and a house, he would have to meet the liability.' Q& T+ |, S6 I+ ^& \
Each partner is liable too pay tax on his share of the profit made. For legal purposes, the" `0 }9 W7 @/ ~' Y- v, M" p2 L0 V
liability is full, despite the percentage of partnership interest.! V9 H) R& h! L; C& r
2 r4 l4 |' w0 }3 m
It is very desirable for the partners to have a partnership agreement, which sets out the basic
% _& l, `4 H. Pterms of the partnership arrangement, including what business will be conducted, profit and* [' }# o r- K+ ?
loss sharing formula, whether the partnership will continue the death of a party, where the
2 Y5 E/ L& c+ M Z9 x+ Baccount of the partnership will be maintained, and if any partner is to be employed full-time,# B5 x6 @" H1 F
what salary he may expect. If a partnership agreement is not provided, the provisions of the, r" j6 I; O. Y T. k) y
Partnership Act will apply, and in such events, the partnership will dissolve, for example, on
2 ~ e+ B- X8 z" [) U" H6 fthe death of a partner. The partnership agreement also would provide for a formula by which6 m! R y5 z V- U
upon disagreement, a party could withdraw from the partnership. Where no agreement is; z6 r7 B$ n8 L, O5 o2 c
provided, any partner could simply register dissolution of partnership and terminate the
/ p. \2 R) ^# j6 @) l8 Dpartnership arrangement. Legal advice is desirable in drafting a partnership agreement.8 I* F9 ]6 X- \" Z: T# r |1 Y7 `/ E
In case of failure of a partnership to register a business name, no action can be brought by the
G6 h+ K2 @8 Jpartnership to sue a defendant, who fails to pay them.
7 }& E5 Y5 r$ H2 e8 D1 gINCORPORATION
) z) w9 k4 x7 SIncorporation is often called a limited company. When a corporate body is formed, it creates a2 Q; |4 {# X8 |& E5 }
separate legal person, and has a different legal existence than the person or persons who formed
1 X; |" e2 |9 t, b& q+ o) ethat legal entity. A corporation may be identified by using the words "limited", "incorporated",1 ` }: b% d+ H8 {
or "corporation".# Z6 D7 S( p% e" D
The word "limited" correctly describes the idea of limited liability, when a corporation is
% l( E+ z. r! B2 K" C# B, Cformed. Unlike the sole proprietorship and partnership when a corporation is formed, the( L, [& O" u- t4 ^
individual or the persons forming it are only liable for the amount of investment made by them,
8 [9 v, o. n' J( U% O. A2 tin the corporation. In case of financial problems arising, the judgment can be enforced only$ `' a: m1 A) {) m
against the assets and property owned by the corporation, and the assets of the individual and
k C4 ^* W* e' rhis home cannot be touched. This is the most important reason for forming a corporation, as) }% p: f8 u' _ L9 ]1 R6 t
most people wish to protect their personal assets against the risks of the business.
9 p0 I! c! w9 `3 z$ K* Z5 jA corporation offers a variety of tax planning benefits. The most common benefit derived is the8 M; E/ g. t1 j/ f0 }
possibility in a small company, of splitting the income between the husband and the wife.0 I& p* H' _, k9 D# R6 H9 H
Under the attribution rules of the Income Tax Act, the income derived by the wife is deemed to
: ~, ?/ t1 ?4 i) Jbe that of the husband, but where a corporation is formed, and the wife works for the3 e- j& R: _" j( l! ?, Y" s
corporation, it is legally possible for the husband to divert a certain amount of income to the3 u4 U" s9 k& a6 H1 O- K! z
wife, provided that she is doing some work in the company.
, O$ @2 B) c2 e# A8 e: CA corporation is also in effect, an estate-planning vehicle. By issuing common shares to
/ B0 ~9 R+ m7 Xchildren in trust, the growth value of the shares of the corporation can be transferred to the; e; _% I1 E. R7 j- C' y j V9 M; P. q
children without incurring inheritance taxes under Succession Duty Act, and Income Tax Act.
+ ^# x+ A$ |& iA corporation can be formed either under the Canada Business Corporations Act, or the& i; }" g# [# \! V( B. J) j1 |
Provincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
^ w: Z1 T: O Ocompany is desirable where it may, in the future, have head offices in various provinces. A
0 n, R( H1 z" \& e- d0 N" ]2 qfederal company does not require extra-provincial licenses to operate in different provinces. It4 q& K' Y& y# ~+ z1 |$ U9 V$ F5 ?
does require, however in Ontario, a Licence In Mortmain. This license is required when the
* ~5 x4 i* ^& { f/ }; G1 ]) Icompany owns or rents property in Ontario. The Ontario corporation does not require such
8 b# e/ i2 [- I* Tlicense to operate within Ontario, but may require extra-provincial license to operate in other
5 G# h4 p2 D( w) f$ P5 iprovinces, except Quebec.
: G! \9 _6 @( T. V) q, `: J; x3$ s" \' \% q. c6 T5 S3 z
It is now possible for a one-man person to form incorporation and he may be the sole director
3 q0 v n/ \' V1 }7 Salso the sole shareholder in that company. Where there are more shareholders, a difficult
7 U% C* U8 S/ Wdecision to make is the proportion of shares owned by each shareholder in the company. A 51%
v1 P( D l0 @% p- Ncontrol usually gives the right to such shareholders to elect the board of directors and
# F0 ^& S8 A4 i! Z) A/ d8 gaccordingly, exercise effective control of the operations of the business.
; N9 P( Z6 H1 p; b1 V2 Z" WThe directors of a company are responsible to the shareholders and must hold an annual
1 H+ | l7 g7 N. n4 e( ]3 Mgeneral meeting each year, even if there are only one or two shareholders, who might be the4 n: G8 b" V+ H3 q- S3 k
same persons as the directors.3 Q4 M4 l4 a0 \" A+ x9 ]/ c
Where there are two or more shareholders in a company, a buy-sell agreement or some
9 F$ |" R+ X- H. g( t( ^, k' Cshareholders agreement is very desirable. Such agreement can set out how a party can9 n/ B: Y- s5 H+ c
withdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.# s3 \% X, F* g9 |' D/ \
This agreement is commonly ignored by shareholders until a dispute arises, when it is usually+ I @7 V- S, b5 V2 A3 S
too late.$ f6 o! Z# h0 `# h2 N
Competent, legal advice is desirable in forming a company, as the procedure is not simple as
- o6 f8 Z" M7 e. B& K: jthe registration of partnership or proprietorship is.
0 P# f1 K4 R& q! W" h" lChauhan & Associates/ h# x- z. @: n' d. p. u% H3 M5 s" m1 n, I
Barristers and Solicitors
5 W% v* q$ \9 [" D2 Q0 c330 Hwy. No. 7 East, Suite 309- ]0 y4 s. L! x4 G% c5 b6 g
Richmond Hill, Ontario
& z9 A3 `3 M* f/ j( mL4B 3P8
! W* t3 E( T3 I0 O5 ]Tel. (905) 771-1235: H# R, a/ r, U3 h
Fax (905) 771-1237
; D- m, G) {/ S* J. y2 xEmail: globalmigrations@hotmail.com
5 Z& p7 R5 y% _- B4
A: {6 X" `" X% q' R/ P7 [; DPARTNERSHIP MEMO, z# t {) \2 n2 Y: A6 S
REGISTRATION REQUIREMENTS% g4 V$ @ @* s( P1 V8 g7 x) ^3 N' V
Where two or more persons are engaged in a business activity, it is known as a
) m" G8 Y0 R$ V- B! Hpartnership. They must register the business name if names other than their own names are; R' I* G2 Y8 n! {2 I$ L
being used to conduct the business activity. Partners must sign the declaration form.
5 ^7 o6 z- S6 U. O5 m& KRegistration is valid for 5 years. If the partnership is not registered no action can be brought by
, S: F% G# \8 Bthe partnership against a debtor for recovery of money until the partnership is registered.
! k( W% \ Z" u8 M# |& ]If you want me to assist you in the preparation or registration or partnership please let( W& s, o& B" p9 ~* R b. J1 W J. `
me know.; c; S, E: |! }0 I
LIABILITY9 b6 n# }9 e1 ]# a
Each partner remains fully liable for the debts of the partnership, regardless of which' \; y% n9 E# }& B% M; p7 p6 J. N
partner incurred the liability. In the event of financial difficulties, a judgment can be enforced
: r2 g! T3 U# z5 aagainst each and every partner. If any one partner does not have nay money, the other partner
, Q+ v% e0 g1 F5 Twho has the property and personal belongings and a house would have to meet the liability.
' \8 s9 J3 l* k1 c2 `Using the name company for a partnership does not eliminate personal liability.
8 ~4 U( S' H8 R1 _3 I3 V3 }TAX/ W. k! R7 g" f' k9 `8 p4 V
Each partner is liable to pay tax on his share of the profit made. Expenses are deducted6 |1 i% k! p6 G6 a
from the profit and the share of net income of each partner is declared on his tax return.9 U6 V$ R' m8 i3 Q& b* L
Partnership can have a different fiscal year than the calendar year.
) O$ s- i0 ]. W. Y$ \AGREEMENT
" n! f0 Y9 ]' }/ f6 @( h6 N' w" {It is very desirable for the partners to have a partnership agreement. It should set out
" Q* t" A5 {5 a" vthe basic terms of the partnership arrangement, including what business will be conducted,
: Q+ H3 L- C+ y# D& ]( M) Hprofit and loss sharing formula, whether the partnership will continue on the death of a party," z8 z5 Z9 L7 }) `7 W/ a
where the account of the partnership will be maintained, and if any partner is to be employed/ `8 u7 d" p( G( s+ g
full-time, what salary he may expect. If a partnership agreement is not provided, the provisions/ |" b( v9 N o9 ^; ]
of the Partnership act will apply. Without an agreement the partnership would dissolve on the$ A) x+ l5 x c5 c8 g
death of a partner. The partnership agreement should also provide for a formula by which in
- G% H& L' J" e0 V; J0 q0 qthe event of disagreement a party can withdraw from the partnership. Where no agreement is
$ O5 e0 a# ~4 h# F& \5 ^ xprovided, any partner could simply register dissolution of partnership and terminate the, k* P0 Q( z+ a' A4 _" l
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.3 q/ M+ h) u& Y4 ^
INCORPORATION
# G* c) v( r4 FIncorporation is often referred to as a limited company. When a limited company is
# q& |) o2 f4 w- u; j1 R/ y% v( xformed, it creates a separate legal person, and has a different legal existence. A corporation3 y! Q* \- q9 x+ @0 S# _
may be identified by the use of the words "limited", "incorporated", or "corporation".7 K' Y9 x0 H4 B6 f
5/ [, z3 O0 G2 B; N: S# s
The word "limited" correctly describes the concept of limited liability of a corporation.% }; b- | c5 E# g7 W
Unlike the sole proprietorship and partnership when a corporation is formed, the individual or
' W2 `* c7 i4 Z$ R6 o0 A3 z/ ?, o5 {the persons forming it are only liable for the amount of investment made by them in the
* U# l/ b! {$ K. D- B+ C7 w) y* xCorporation. In the event of financial problems arising, the judgment can be enforced only) S# h3 E j: ]5 W4 @& u
against the assets and property owned by the corporation, and the assets of the individual and
! h% E4 r0 p* ahis home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.! v3 u8 P, T4 r7 f9 p1 {) L3 `8 S
The most important reason for forming a corporation is to protect personal assets against the/ {6 ~7 |1 b( L) W
risks of the business.
. P& @1 j) i& c5 V0 wIt is now possible for a one-man person to form a corporation and he can be the sole' ]" g) P" I# f5 G9 d5 F& n% K# l
director and also the sole shareholder in that company.
+ h( L2 M: ^& X" l3 `( o, TA corporation is more expensive but desirable for the protection of personal liability.
2 J% Z% Q' Y/ NJay Chauhan% Y Q' E9 w/ ~4 g: L% ~
Barrister and Solicitor
# @# ^8 L1 C; N8 O330 Highway 7 East, Suite 309
; z8 x ]! P% \* n8 VRichmond Hill, Ontario
6 x3 z7 t3 f4 x& s8 S6 P [6 KL4B 3P8# K# I* u7 }7 k# ?/ p$ c: J: J( R' p* Z
Tel.: (905) 771-12357 Y( s9 I2 v* e( n7 z! O
Fax: (905) 771-1237
# ]% V7 B4 v% e z' a$ t1 {Email: globalmigrations@hotmail.com |
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