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1. there are three kinds of partnerships:8 Z% o. Y0 u4 e- Z7 j& T! @7 d
General Partnership, Limited Partnership, and Public-Private Partnership
" I6 q7 v% P" |& k4 a6 vSee details on http://www.alberta-canada.com/investlocate/1012.html
2 z* X# I5 O! `* {7 F7 g) J2. See the article:
5 @; g+ {) h! N$ m, tPROPRIETORSHIP, PARTNERSHIP AND INCORPORATION
* P3 n# I9 V2 X5 ABy Jay Chauhan
% f7 j9 }. S% P1 \( U& ~LEGAL FORMS OF BUSINESS ORGANIZATIONS
8 ?; o0 @- N. m( FThere are three basic ways in which a business organization can exist, namely a sole
' y0 O; V/ g+ U7 p' ?! @1 xproprietorship, a partnership, and a corporation. A sole proprietorship is where one person
' w% ~0 o5 Y+ P. Zusing his own name or any other name, conducts business. In a partnership, there are two or
" p7 M# S: }" b% smore persons carrying on a business activity under their own names or the name of a6 X( C+ C) m7 m: Y; v
partnership. Incorporations are for legal purposes and entirely separate, legal entity created by9 i7 ^( F9 \: g) i I$ n7 W
law and can be used by a single person or more persons together.
. W9 ~- U; E! p6 fSOLE PROPRIETORSHIP
. `( c% F4 A( K/ s: nIf a one-man operation uses a name different that his own, he must register this name under the
; x: Q. p o9 M* a# bPartnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it) H4 _+ Q; J4 f$ k
can be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the
# j$ s' ^& ?- L1 F. Eindividual remains personally liable and his home and personal assets can be used to satisfy a: L7 l3 w' O9 Y- H5 W% q7 V! {$ Y7 Q
judgement. The registration lasts for five years, and must be renewed at expiry./ x. n5 z1 D7 G! ~; k2 O
It is possible for a sole proprietor to call his business by a name such as "ABC Company". The" `& y0 E6 m, E" L$ s2 {8 X
fact that the word "company" is used does not provide any extra legal protection as3 U$ g/ {% U) u5 C% p8 z
incorporation does, and this is commonly misunderstood by many. For tax and legal purposes,$ Z7 G& J2 s! u. r+ U' `
the sole proprietor is the same as the individual, even if he uses a different name.
- o& `3 i" l" K1 s: ~: NPARTNERSHIP
4 P2 c! \0 Z- E- \Where two or more persons are engaged in a business activity, it is known as a partnership." I6 k0 a( j5 l% o Y; @
Like a sole proprietorship, they must register the business name if names other than their own
, z/ ^& f3 C8 w9 b' Dare being used to conduct the business activity. The same provisions of registration apply and S/ m. b) {' [1 m
each partner must sign this form and such declaration lasts five years. Here again, if the word( P4 _5 l p4 E- t+ T' R' A
"company" is used at the end of the name, it provides no extra protection, like incorporation./ v9 m! M9 C8 S: E( j; T0 T
Each partner remains fully liable for the debts of the partnership, regardless of which partner
: s2 }! x0 ^, O- v4 B& Dincurred the liability. In case of financial difficulties, the judgement can be enforced against
' N8 k/ |& v! }& S$ S- g0 \each and every partner and if any one partner does not have any monies, the other partner who
) `* ~ m3 _* U/ D2 d, ]has the property and personal belongings and a house, he would have to meet the liability.
+ |0 X9 M0 K2 P: A, H8 SEach partner is liable too pay tax on his share of the profit made. For legal purposes, the
6 n$ n7 }0 E( ?6 Q/ z" I7 f/ Q! Dliability is full, despite the percentage of partnership interest.
4 g/ U6 n) G; g/ O& L2
* Q' W& v$ S- E" t3 w4 e" \3 q B. B* gIt is very desirable for the partners to have a partnership agreement, which sets out the basic/ A( ?8 x1 z3 N8 e
terms of the partnership arrangement, including what business will be conducted, profit and" A: U, v! z b7 h$ D
loss sharing formula, whether the partnership will continue the death of a party, where the- ^7 V! r4 R7 r3 R5 @+ r
account of the partnership will be maintained, and if any partner is to be employed full-time,8 K% n9 [, b" N% n
what salary he may expect. If a partnership agreement is not provided, the provisions of the
3 M# f+ V8 Y' q6 ], h$ K* x1 MPartnership Act will apply, and in such events, the partnership will dissolve, for example, on
/ k4 E) \) ?, Tthe death of a partner. The partnership agreement also would provide for a formula by which
9 v2 s4 M% E6 m: u# Qupon disagreement, a party could withdraw from the partnership. Where no agreement is
# I8 T# H& k8 Iprovided, any partner could simply register dissolution of partnership and terminate the5 N* y8 A' @: h2 H1 S
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.: g: K' Q0 E" {
In case of failure of a partnership to register a business name, no action can be brought by the
% r0 |: L% J( K' Wpartnership to sue a defendant, who fails to pay them.' _+ ]- @ H7 E0 L
INCORPORATION/ \1 H6 s6 o7 c X7 v5 u0 x
Incorporation is often called a limited company. When a corporate body is formed, it creates a0 L* N1 i1 Q I5 f! ~
separate legal person, and has a different legal existence than the person or persons who formed) O) Y7 C; \; n$ t G8 O' g
that legal entity. A corporation may be identified by using the words "limited", "incorporated",
! S( I0 M1 t5 {: @/ Ior "corporation".8 N$ ~. C$ `" k8 n* ^- D
The word "limited" correctly describes the idea of limited liability, when a corporation is
' B: L, ] q6 F Eformed. Unlike the sole proprietorship and partnership when a corporation is formed, the) `6 S5 Q" }: P" H1 z5 T, ~$ d
individual or the persons forming it are only liable for the amount of investment made by them,
5 ^& Q2 Q$ O1 Y4 m* ~7 @+ W5 Bin the corporation. In case of financial problems arising, the judgment can be enforced only2 h- u5 R( d" N, I4 `" ]( r
against the assets and property owned by the corporation, and the assets of the individual and
( F V- K$ }6 ^# _his home cannot be touched. This is the most important reason for forming a corporation, as
2 h ~+ w* j! M+ Gmost people wish to protect their personal assets against the risks of the business.
: y8 {1 x% F( V& F% zA corporation offers a variety of tax planning benefits. The most common benefit derived is the
- C' P1 p+ J+ z z5 z# u- Q! d, Tpossibility in a small company, of splitting the income between the husband and the wife.
1 A+ Y: F, P5 l& w& XUnder the attribution rules of the Income Tax Act, the income derived by the wife is deemed to0 r4 t- z- ]% h" a# }
be that of the husband, but where a corporation is formed, and the wife works for the' T/ _* M) l; l) Q, C" u, T
corporation, it is legally possible for the husband to divert a certain amount of income to the
( D3 }0 h* m! `* M# d- u% y7 pwife, provided that she is doing some work in the company.
2 [" `4 W3 b+ T: AA corporation is also in effect, an estate-planning vehicle. By issuing common shares to7 _& \" N/ X4 ]! ]9 V. i/ z( s
children in trust, the growth value of the shares of the corporation can be transferred to the, x3 s' K7 X m6 L) H5 o( o8 L
children without incurring inheritance taxes under Succession Duty Act, and Income Tax Act. k2 }& w: r2 e! M. j
A corporation can be formed either under the Canada Business Corporations Act, or the
' I& x" `3 i) Q& U8 vProvincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal' _2 n' W" l$ m* @- {
company is desirable where it may, in the future, have head offices in various provinces. A
) G _5 p0 O% d& R8 \federal company does not require extra-provincial licenses to operate in different provinces. It
3 P, J3 L# ~& v0 D( kdoes require, however in Ontario, a Licence In Mortmain. This license is required when the
8 G* S( [% `; |1 F4 ^company owns or rents property in Ontario. The Ontario corporation does not require such7 G: Y w, @9 V) Q; v! H' _8 v
license to operate within Ontario, but may require extra-provincial license to operate in other
1 A/ u2 `/ o, ^: y! N( P+ ^9 D' ^provinces, except Quebec.7 B/ O0 `$ R6 s/ a
3# Q& F: k: x) G- L. s7 o- s3 Y, U
It is now possible for a one-man person to form incorporation and he may be the sole director
: y# u! {: b: r8 h$ ^2 falso the sole shareholder in that company. Where there are more shareholders, a difficult/ V8 d4 t5 j! c9 c4 @5 L3 |
decision to make is the proportion of shares owned by each shareholder in the company. A 51%
6 R8 E" C( D. P" V* J* }3 l# jcontrol usually gives the right to such shareholders to elect the board of directors and1 c% ?$ M8 N, g, A! H
accordingly, exercise effective control of the operations of the business.6 ^0 U* ~7 O6 L! Z
The directors of a company are responsible to the shareholders and must hold an annual
, f6 |3 S: w$ C3 ]' Ageneral meeting each year, even if there are only one or two shareholders, who might be the% Y* q. y* j) K, C
same persons as the directors.0 N: C0 y; B' Y4 i5 x" k8 h
Where there are two or more shareholders in a company, a buy-sell agreement or some
* d% N. Y- A" N2 f/ b( Mshareholders agreement is very desirable. Such agreement can set out how a party can3 v; v+ n4 B- f! o' z! _+ V. ?9 r
withdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.
5 T# [6 \) i% ^4 K U+ b& y% gThis agreement is commonly ignored by shareholders until a dispute arises, when it is usually
' t$ u$ W. G6 b% _too late.+ |: q8 ]. D9 X4 h+ r% ]7 B
Competent, legal advice is desirable in forming a company, as the procedure is not simple as
+ D7 O0 f6 x0 L1 T4 Wthe registration of partnership or proprietorship is.
3 K$ z: l9 t8 q/ N4 [: Z) o/ UChauhan & Associates
2 n3 h& c$ }. I3 S" QBarristers and Solicitors4 ^4 `) ]# ^) l' V- r7 Z
330 Hwy. No. 7 East, Suite 309
. T) Z: Z$ C; D; f# iRichmond Hill, Ontario
+ [! K: {1 q" D) f+ ~! SL4B 3P8& y0 k& w1 d. P+ h" o& |9 Z- E2 Z9 m
Tel. (905) 771-1235
- |: o2 U. m8 ]8 ?Fax (905) 771-12378 l4 T, E1 n- c) C
Email: globalmigrations@hotmail.com
& f1 K0 }$ ?: l5 D `47 U5 b+ w9 x* C/ ]7 Q7 l$ Y
PARTNERSHIP MEMO
' Q5 a1 Z+ m7 | t0 P+ S: B! VREGISTRATION REQUIREMENTS
! o. v) C6 @$ e9 sWhere two or more persons are engaged in a business activity, it is known as a; g0 Q7 i8 ~5 V% Z9 V( Q6 T
partnership. They must register the business name if names other than their own names are
( j1 ]3 ?: Y1 a, W# s- d# b, n" Q xbeing used to conduct the business activity. Partners must sign the declaration form.7 N2 S' f/ U1 q! s6 i0 F2 X
Registration is valid for 5 years. If the partnership is not registered no action can be brought by
3 E9 o0 Q5 b# x7 l/ mthe partnership against a debtor for recovery of money until the partnership is registered.
2 Y6 I) ]* |7 T! p jIf you want me to assist you in the preparation or registration or partnership please let
# P% [, |7 }6 N. zme know.' D6 D! U2 N M; I
LIABILITY; ~! J! {, U/ A0 S" p
Each partner remains fully liable for the debts of the partnership, regardless of which. X% d! S6 B$ _: x) Q6 E- Y
partner incurred the liability. In the event of financial difficulties, a judgment can be enforced+ ]' N9 d8 ~( X0 e; F7 a9 J) H3 ~0 F
against each and every partner. If any one partner does not have nay money, the other partner
) c1 ]- J) j2 O P' ~& D# b( [who has the property and personal belongings and a house would have to meet the liability.0 j9 b" J7 Y( W9 Q4 @/ J
Using the name company for a partnership does not eliminate personal liability.3 l' R) w: ~2 O! A$ T
TAX- u: T- }) i' @+ o" C9 i
Each partner is liable to pay tax on his share of the profit made. Expenses are deducted
( h9 X- e- W) K4 \7 l" {% @from the profit and the share of net income of each partner is declared on his tax return.2 f% t/ u; I/ Q: A9 L) m
Partnership can have a different fiscal year than the calendar year.
4 l! b; k% U$ z" _, [) XAGREEMENT& O" n# l: C6 V7 F
It is very desirable for the partners to have a partnership agreement. It should set out; E+ v, z( v8 m: C- _
the basic terms of the partnership arrangement, including what business will be conducted,+ A4 N% e6 u" q9 U" S& Y/ C
profit and loss sharing formula, whether the partnership will continue on the death of a party,5 f* _/ U ]9 R- p
where the account of the partnership will be maintained, and if any partner is to be employed; W+ w ?1 c6 ]0 ^% S
full-time, what salary he may expect. If a partnership agreement is not provided, the provisions ^$ G5 O4 y, z7 D4 Y
of the Partnership act will apply. Without an agreement the partnership would dissolve on the4 g/ H) s8 O3 R8 I' C C! Q/ N
death of a partner. The partnership agreement should also provide for a formula by which in
; b4 s3 K, r3 d- {5 Q! q! pthe event of disagreement a party can withdraw from the partnership. Where no agreement is
- m/ |/ M* U+ Z5 T! aprovided, any partner could simply register dissolution of partnership and terminate the6 R$ J" w h0 X" ?
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.% O; ^+ [- ~+ B. w
INCORPORATION
* u. Q3 \9 L4 t. \7 \Incorporation is often referred to as a limited company. When a limited company is1 P7 J$ r' G6 R4 I% Z! O t
formed, it creates a separate legal person, and has a different legal existence. A corporation
3 z" s, l, w/ j, @! g! ymay be identified by the use of the words "limited", "incorporated", or "corporation".8 l) K9 f5 X" Q3 j4 C
58 Q# P0 X! G- Q# {! K! Q2 r1 x
The word "limited" correctly describes the concept of limited liability of a corporation.
) u+ X6 d, d/ ?' TUnlike the sole proprietorship and partnership when a corporation is formed, the individual or% i7 E3 Q+ ~" T* P3 b
the persons forming it are only liable for the amount of investment made by them in the
! N! t% ]* C" I$ A7 vCorporation. In the event of financial problems arising, the judgment can be enforced only
: X: ~: q) k/ B: a) O. _/ {9 L. lagainst the assets and property owned by the corporation, and the assets of the individual and: |4 S' z: R3 Y2 y. X& j
his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.
2 N) m# G4 a/ Z% P% w: XThe most important reason for forming a corporation is to protect personal assets against the4 w6 k" {0 c$ d( c
risks of the business.) l- o* x! A/ J$ f. e5 z
It is now possible for a one-man person to form a corporation and he can be the sole+ X; j+ u1 f9 s* M
director and also the sole shareholder in that company.
5 p8 ] @* i! n- y6 B NA corporation is more expensive but desirable for the protection of personal liability.
# @6 a' `" }/ S- v/ U) n! M) QJay Chauhan
) f) E2 u/ m, x$ i. j" Y, wBarrister and Solicitor
( p4 p* t7 _, R# W8 s330 Highway 7 East, Suite 3092 z: t. z) U1 F3 p% ]
Richmond Hill, Ontario E- d& f3 B r5 j! }8 ]8 R
L4B 3P8% l" _9 k( r8 t8 b
Tel.: (905) 771-1235
0 v' A# p# |# z2 }# @Fax: (905) 771-1237
' c$ x T1 G# m. F4 {5 S" bEmail: globalmigrations@hotmail.com |
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