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1. there are three kinds of partnerships:+ h$ \- J% K9 r+ e! Z4 y; j7 g
General Partnership, Limited Partnership, and Public-Private Partnership
* }1 M8 d4 v% F* e) o, a4 xSee details on http://www.alberta-canada.com/investlocate/1012.html- a% t1 l9 [3 k- W( x
2. See the article:1 ]3 R) S6 w- J1 e5 y
PROPRIETORSHIP, PARTNERSHIP AND INCORPORATION
6 R+ z/ a8 |. L0 N1 Z1 a" e+ NBy Jay Chauhan! I& e3 X7 ~ E: W' @8 J# w4 |+ h
LEGAL FORMS OF BUSINESS ORGANIZATIONS, v0 z7 Z0 H- r$ G/ O
There are three basic ways in which a business organization can exist, namely a sole
0 Z& V& U; d+ ]4 K( f' fproprietorship, a partnership, and a corporation. A sole proprietorship is where one person
! \4 D- b8 y$ E1 F& musing his own name or any other name, conducts business. In a partnership, there are two or
# e! ]1 j5 W3 C Pmore persons carrying on a business activity under their own names or the name of a) O3 K9 s. X' S) A
partnership. Incorporations are for legal purposes and entirely separate, legal entity created by
- h; l. A) T7 y& l9 V$ ?( W Nlaw and can be used by a single person or more persons together.1 V. U, b# ?, A7 L' r! n5 f, \
SOLE PROPRIETORSHIP
/ w# c8 P& {# T: C: ?1 NIf a one-man operation uses a name different that his own, he must register this name under the
3 f3 l+ F3 i: b) l2 kPartnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it ~3 [. z1 c4 I+ \5 E6 ]1 K1 Y
can be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the
# {/ Z7 u/ S% S8 ~7 Z4 z5 F3 pindividual remains personally liable and his home and personal assets can be used to satisfy a
$ F3 M( ?+ l/ njudgement. The registration lasts for five years, and must be renewed at expiry.5 y' Z: {; Z* u8 a8 \$ M
It is possible for a sole proprietor to call his business by a name such as "ABC Company". The
$ x4 L2 G/ {) e! ]8 |; r! _, _fact that the word "company" is used does not provide any extra legal protection as+ w% D6 ^# I% W, P% [' N# c/ n
incorporation does, and this is commonly misunderstood by many. For tax and legal purposes,
7 [2 I6 a% V0 X2 k* ~3 D$ V6 i) Wthe sole proprietor is the same as the individual, even if he uses a different name.7 [+ y% {% ^. E
PARTNERSHIP6 P3 m. E8 D% K9 r
Where two or more persons are engaged in a business activity, it is known as a partnership./ d- ^ p K) F, M
Like a sole proprietorship, they must register the business name if names other than their own; S7 V* l* E2 q- M" V
are being used to conduct the business activity. The same provisions of registration apply and' K& v: Z" A( m0 E& H
each partner must sign this form and such declaration lasts five years. Here again, if the word
{2 ?, G' G2 Q"company" is used at the end of the name, it provides no extra protection, like incorporation.6 N. j) m5 k* {" f q* S
Each partner remains fully liable for the debts of the partnership, regardless of which partner
, ~5 s* U' Z4 rincurred the liability. In case of financial difficulties, the judgement can be enforced against
- C' Q5 ?$ t- Seach and every partner and if any one partner does not have any monies, the other partner who
4 k! T- C% r2 a( m' V" }# r4 h# ^! o" Bhas the property and personal belongings and a house, he would have to meet the liability.
" _1 h' F; D( ?5 ?. k; r! j3 x) \Each partner is liable too pay tax on his share of the profit made. For legal purposes, the
, @& X. c6 ?. uliability is full, despite the percentage of partnership interest.4 E2 F( x' S' b% s W
2
0 N' z" ?, Y" G5 eIt is very desirable for the partners to have a partnership agreement, which sets out the basic1 J9 x+ S5 g& E+ @- @0 F
terms of the partnership arrangement, including what business will be conducted, profit and* q8 r. i0 O' B/ r) l- u( `
loss sharing formula, whether the partnership will continue the death of a party, where the7 U( I+ X) l; U
account of the partnership will be maintained, and if any partner is to be employed full-time,6 T( l5 }; A" g! C3 z% [: s7 B
what salary he may expect. If a partnership agreement is not provided, the provisions of the" G$ x; |0 y5 U2 W+ H8 B# w- x; E
Partnership Act will apply, and in such events, the partnership will dissolve, for example, on& _1 b% ~& P( G, @$ h5 E
the death of a partner. The partnership agreement also would provide for a formula by which
. R# ?" V; ]. J: M) ~upon disagreement, a party could withdraw from the partnership. Where no agreement is4 B! u3 T4 L& S3 T3 Z
provided, any partner could simply register dissolution of partnership and terminate the3 N3 F, n7 W; g3 o0 W2 G7 S/ h' }" j
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.
! {$ O5 d. L P. _9 S4 f9 ?# Y CIn case of failure of a partnership to register a business name, no action can be brought by the
, \* k" t& ?2 I% B( }) H' lpartnership to sue a defendant, who fails to pay them.4 N5 J) o2 C' o
INCORPORATION! C0 J; L+ |7 r# E* U
Incorporation is often called a limited company. When a corporate body is formed, it creates a/ V* e4 h7 l E4 v' h7 h
separate legal person, and has a different legal existence than the person or persons who formed
# T6 B, I) V5 I7 I2 Lthat legal entity. A corporation may be identified by using the words "limited", "incorporated",9 T( b' c+ G w* @3 \6 X6 T! v
or "corporation".
* d1 C- Q; J" ~% cThe word "limited" correctly describes the idea of limited liability, when a corporation is
) K* V8 _- ?, R) {: c, A( z7 a' hformed. Unlike the sole proprietorship and partnership when a corporation is formed, the
2 E& a7 T( E! |, W/ Nindividual or the persons forming it are only liable for the amount of investment made by them,
$ _6 H4 n- u) c, rin the corporation. In case of financial problems arising, the judgment can be enforced only0 @& G* H& }/ C( u3 ]( C, U9 [# _! t
against the assets and property owned by the corporation, and the assets of the individual and" m( a: Y" i" ]6 ^6 Y7 @* S
his home cannot be touched. This is the most important reason for forming a corporation, as
; Q# y# h" C5 Y4 j4 zmost people wish to protect their personal assets against the risks of the business.. S: W" S2 \6 ~
A corporation offers a variety of tax planning benefits. The most common benefit derived is the
9 n5 y! L3 G, ^possibility in a small company, of splitting the income between the husband and the wife.
* ^7 `2 U/ t. fUnder the attribution rules of the Income Tax Act, the income derived by the wife is deemed to
; d3 K. \, V, t, N/ v7 _be that of the husband, but where a corporation is formed, and the wife works for the
0 h) _; K; S3 {2 u- D$ w! P! Mcorporation, it is legally possible for the husband to divert a certain amount of income to the/ A5 r/ R3 m, Z3 L- t: V4 ^
wife, provided that she is doing some work in the company.2 k1 h6 o/ y% p& X' m6 R
A corporation is also in effect, an estate-planning vehicle. By issuing common shares to. N7 X9 F" R9 H( ~; q
children in trust, the growth value of the shares of the corporation can be transferred to the
& Y% |7 p, S& K* k+ |+ Gchildren without incurring inheritance taxes under Succession Duty Act, and Income Tax Act./ @& a& g2 R, o* }4 z
A corporation can be formed either under the Canada Business Corporations Act, or the& }% P1 X6 |- j+ n# a
Provincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
2 T$ c- l" m" ~1 Dcompany is desirable where it may, in the future, have head offices in various provinces. A
2 y( t) ?1 c3 n6 W/ ^5 @+ gfederal company does not require extra-provincial licenses to operate in different provinces. It: C8 B! m5 t5 i! m2 B0 ?
does require, however in Ontario, a Licence In Mortmain. This license is required when the
& m7 Y4 q3 \7 P0 Qcompany owns or rents property in Ontario. The Ontario corporation does not require such) x, G1 b) z. u& k
license to operate within Ontario, but may require extra-provincial license to operate in other
1 H1 D& @7 B, K6 n3 z8 f, u$ Fprovinces, except Quebec.
- ]/ ?' o p9 ]. q" V* x3
q4 I6 J f$ u! ZIt is now possible for a one-man person to form incorporation and he may be the sole director# t, z& D+ Q4 Q: X; w
also the sole shareholder in that company. Where there are more shareholders, a difficult
; J3 |0 S! N/ L- o% E" p# T. tdecision to make is the proportion of shares owned by each shareholder in the company. A 51%: l) q0 |+ e! |, n' L
control usually gives the right to such shareholders to elect the board of directors and4 {" m; _6 q# z2 ~8 ]" v
accordingly, exercise effective control of the operations of the business.
% }9 N* i8 h* {8 j: IThe directors of a company are responsible to the shareholders and must hold an annual3 N9 R4 k) z0 U9 b6 o* c2 j
general meeting each year, even if there are only one or two shareholders, who might be the5 H6 j2 v: E2 W2 y
same persons as the directors.
: r. C% E* N0 D% ?1 YWhere there are two or more shareholders in a company, a buy-sell agreement or some
# n% ^0 a1 u0 L& B& t4 k+ gshareholders agreement is very desirable. Such agreement can set out how a party can8 z k, w3 n! I. |2 I6 d$ ~
withdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.
* z- x0 j9 l2 }& Y- N4 e, H4 eThis agreement is commonly ignored by shareholders until a dispute arises, when it is usually
( b; E" O+ Y- p/ Q% [too late.
0 y6 z7 H0 [7 U/ N) GCompetent, legal advice is desirable in forming a company, as the procedure is not simple as
1 [7 h3 W: ~8 b: \7 N) H# ]6 Dthe registration of partnership or proprietorship is.& K" x7 u" x$ |. e3 X' j
Chauhan & Associates
7 E9 i+ z! X0 a; hBarristers and Solicitors
. h7 Y4 k) S* q( G330 Hwy. No. 7 East, Suite 3093 l8 @- `; ]- y* A
Richmond Hill, Ontario1 {% H/ Q$ w4 n' y4 ~) ]* z- n. G' y
L4B 3P8: a& v" D% j; @( c+ r+ o% w9 V
Tel. (905) 771-12359 G$ l9 d& P& M: ^% s. `
Fax (905) 771-1237
4 D# f% i3 t0 e9 p2 X" DEmail: globalmigrations@hotmail.com
+ M# t5 r5 ^* w! a& `+ h b4
; W4 }! L7 @! ] pPARTNERSHIP MEMO8 R' p! G& p. ]! G; z: y
REGISTRATION REQUIREMENTS8 Q% g( P% |4 Q) R( w0 I
Where two or more persons are engaged in a business activity, it is known as a! k/ F9 k( Q' d
partnership. They must register the business name if names other than their own names are
2 D5 Z7 N% @# ^2 N' Dbeing used to conduct the business activity. Partners must sign the declaration form.# p2 v" r3 Q1 I9 V9 C+ C9 @
Registration is valid for 5 years. If the partnership is not registered no action can be brought by
, B0 F2 Z7 k2 ~" r# A7 f! Ithe partnership against a debtor for recovery of money until the partnership is registered.# Z7 q8 }0 x @( d! C
If you want me to assist you in the preparation or registration or partnership please let
8 ~, l2 D9 ?; e2 y9 }) v8 b: q' _3 lme know.$ `" x1 f$ F& U
LIABILITY
4 l0 z. c1 z& nEach partner remains fully liable for the debts of the partnership, regardless of which& |) O. j M4 i0 e3 [
partner incurred the liability. In the event of financial difficulties, a judgment can be enforced
5 |7 ^* [, {$ t- V, x2 o! j' h6 Ragainst each and every partner. If any one partner does not have nay money, the other partner& u' [/ m# ?. A+ J
who has the property and personal belongings and a house would have to meet the liability.
- I- D( n, Q. ~1 c/ w" \Using the name company for a partnership does not eliminate personal liability.3 \" g2 p3 }9 Y8 g! X
TAX% A9 \3 p% {6 r5 E% }
Each partner is liable to pay tax on his share of the profit made. Expenses are deducted) B9 E! k7 v* E' _$ D [ Y
from the profit and the share of net income of each partner is declared on his tax return., }( m3 A7 J: ]; z# O9 U# f
Partnership can have a different fiscal year than the calendar year.+ E& X2 \1 z! C/ F
AGREEMENT4 \" u" v6 ?' M% A6 r4 L
It is very desirable for the partners to have a partnership agreement. It should set out" U; V( o. v, R. I" v
the basic terms of the partnership arrangement, including what business will be conducted,$ a# c4 R: |$ D% N
profit and loss sharing formula, whether the partnership will continue on the death of a party,
$ ^2 q! [; E0 y2 Ywhere the account of the partnership will be maintained, and if any partner is to be employed
: n& ], u- g% }full-time, what salary he may expect. If a partnership agreement is not provided, the provisions7 Q8 n8 h! N& M l1 g L
of the Partnership act will apply. Without an agreement the partnership would dissolve on the
+ r! J1 S8 v- u$ j) d2 Udeath of a partner. The partnership agreement should also provide for a formula by which in. Y" q" x/ L2 a8 W! t% U
the event of disagreement a party can withdraw from the partnership. Where no agreement is
0 f; P+ t+ V7 k8 Q2 `provided, any partner could simply register dissolution of partnership and terminate the9 `5 w& w3 s$ P" R# w/ P
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.5 }4 u# m4 U- n! f% G. v, i
INCORPORATION5 L: G- r# t# B2 k s
Incorporation is often referred to as a limited company. When a limited company is
4 l' n) S: y, R; [: ~: w; Zformed, it creates a separate legal person, and has a different legal existence. A corporation
4 J3 z2 u; m5 _, T* l* Y; hmay be identified by the use of the words "limited", "incorporated", or "corporation".
( _9 V5 o' a& e4 p+ d5
- q1 }/ H& c, u( o0 WThe word "limited" correctly describes the concept of limited liability of a corporation.
9 E8 X4 F9 r9 Z8 j, FUnlike the sole proprietorship and partnership when a corporation is formed, the individual or
) q3 ]2 ^ O$ A; N2 \( K. ythe persons forming it are only liable for the amount of investment made by them in the2 { ]( b! v7 J& P% {/ q5 M
Corporation. In the event of financial problems arising, the judgment can be enforced only h3 Y2 {( `+ w, A2 K: y
against the assets and property owned by the corporation, and the assets of the individual and7 y1 W: i# y7 m/ p" I1 }' h
his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.- c' s6 X( ^) V! M
The most important reason for forming a corporation is to protect personal assets against the) A* M! ?/ A" S1 k1 M- `
risks of the business.
& |% K) l' @, `" U! cIt is now possible for a one-man person to form a corporation and he can be the sole
) \5 [* P( T* o; m: f' Gdirector and also the sole shareholder in that company.; }+ E D T+ f: R% Z# s- [
A corporation is more expensive but desirable for the protection of personal liability./ ?9 a- E5 l7 S' O4 R( O
Jay Chauhan0 L6 }/ p \: E0 C0 v
Barrister and Solicitor7 l2 @- U5 W: h( p$ Q1 h
330 Highway 7 East, Suite 309* F+ Q8 g) T s5 e6 R
Richmond Hill, Ontario3 L+ f5 r- ~& Y
L4B 3P8
+ `# J1 f8 M; }3 A n6 I( _3 ~Tel.: (905) 771-1235
4 a* M2 p+ A/ O$ R8 `: B: LFax: (905) 771-1237! \- B3 h% `$ s3 o
Email: globalmigrations@hotmail.com |
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