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1. there are three kinds of partnerships:6 w6 d4 B8 V5 L. U+ D
General Partnership, Limited Partnership, and Public-Private Partnership2 t) n9 p# V* |1 O! a
See details on http://www.alberta-canada.com/investlocate/1012.html
0 s0 Q6 y4 B3 e/ c& `" H2. See the article:1 K7 E0 ? `1 ^5 J7 a7 R" T2 b: o
PROPRIETORSHIP, PARTNERSHIP AND INCORPORATION
X+ G: |. R* u4 FBy Jay Chauhan y# I$ T8 r9 C3 `* r8 x( w
LEGAL FORMS OF BUSINESS ORGANIZATIONS0 W1 ]$ m8 K4 }
There are three basic ways in which a business organization can exist, namely a sole
( ?- q3 H! F* z0 e+ G& Hproprietorship, a partnership, and a corporation. A sole proprietorship is where one person2 p3 j$ w$ m g4 v
using his own name or any other name, conducts business. In a partnership, there are two or. W. u+ t8 {+ C) b1 u
more persons carrying on a business activity under their own names or the name of a
4 @1 l# l( Q7 v0 Zpartnership. Incorporations are for legal purposes and entirely separate, legal entity created by
( j8 p: y9 R( s# h, h4 t7 A( U7 dlaw and can be used by a single person or more persons together.
/ Z% l& t' a! K6 ]4 K' a0 iSOLE PROPRIETORSHIP
% ?9 {7 m m# wIf a one-man operation uses a name different that his own, he must register this name under the
- ^" [8 Z: w1 x1 H, M2 kPartnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it
5 Z& k9 e8 p1 p; `can be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the1 _3 N9 X( ]; b2 I: p- `
individual remains personally liable and his home and personal assets can be used to satisfy a# H3 O5 [* G m% o: `
judgement. The registration lasts for five years, and must be renewed at expiry.. a1 S" m& Q# J7 e; M% V3 U8 ?
It is possible for a sole proprietor to call his business by a name such as "ABC Company". The# W" ?0 n6 {5 ^- Q* K/ y
fact that the word "company" is used does not provide any extra legal protection as
2 w \" N s1 I9 M- Fincorporation does, and this is commonly misunderstood by many. For tax and legal purposes,
2 v& q' s9 R& cthe sole proprietor is the same as the individual, even if he uses a different name.$ L: T; H9 t+ L' i! k- H0 i7 C
PARTNERSHIP
( S2 x; W1 I) m+ ~Where two or more persons are engaged in a business activity, it is known as a partnership.+ {7 h) c7 i7 p
Like a sole proprietorship, they must register the business name if names other than their own
9 `1 ?+ H$ u" kare being used to conduct the business activity. The same provisions of registration apply and
- d6 \& x- G, a9 B( Eeach partner must sign this form and such declaration lasts five years. Here again, if the word
; d2 b0 K' Z, |, e"company" is used at the end of the name, it provides no extra protection, like incorporation.8 [: e! g) m9 R
Each partner remains fully liable for the debts of the partnership, regardless of which partner( w: [* b' v- }* t+ ^
incurred the liability. In case of financial difficulties, the judgement can be enforced against! B/ A* ?4 [! ?( a* Q3 c* d
each and every partner and if any one partner does not have any monies, the other partner who
# i! [5 g$ ?9 B0 whas the property and personal belongings and a house, he would have to meet the liability.& m# g$ K6 b: v, d4 f
Each partner is liable too pay tax on his share of the profit made. For legal purposes, the
4 n, A$ v) o; `7 i3 m( E6 n$ Wliability is full, despite the percentage of partnership interest.
0 a1 O* G8 o9 K* d7 @, O; Q" E2
9 N i- U4 H8 V u/ hIt is very desirable for the partners to have a partnership agreement, which sets out the basic
! t' I$ |; X% ?* Dterms of the partnership arrangement, including what business will be conducted, profit and
: u, M4 p7 @" y+ Y6 _" Z/ Iloss sharing formula, whether the partnership will continue the death of a party, where the
5 G6 Z; s& Y& M* X7 I" a+ Saccount of the partnership will be maintained, and if any partner is to be employed full-time,
0 }: l0 f2 w, Y$ l0 r5 q; Z7 }what salary he may expect. If a partnership agreement is not provided, the provisions of the
: X1 b* ?; j6 r3 o% y! d( ^9 W% {Partnership Act will apply, and in such events, the partnership will dissolve, for example, on
* f; K, @" O8 {+ J$ D) Nthe death of a partner. The partnership agreement also would provide for a formula by which
# Q1 P: T% r' a7 o. E/ i1 wupon disagreement, a party could withdraw from the partnership. Where no agreement is
0 K' s# M c' \" w% N& f' V1 A; Kprovided, any partner could simply register dissolution of partnership and terminate the
9 C0 K: ~( c, Zpartnership arrangement. Legal advice is desirable in drafting a partnership agreement.
; C1 B/ u+ D& }In case of failure of a partnership to register a business name, no action can be brought by the* e; J& N. _. ?# H8 \7 ~& }
partnership to sue a defendant, who fails to pay them.3 H8 u7 e9 t# n4 x( F0 Z
INCORPORATION
6 V6 t |* h# ]1 @4 ?* V1 g8 `, qIncorporation is often called a limited company. When a corporate body is formed, it creates a. I; q; V9 ^* x! Q2 `
separate legal person, and has a different legal existence than the person or persons who formed
2 o, u0 d0 N# _# \that legal entity. A corporation may be identified by using the words "limited", "incorporated",
/ |* y. A8 \3 ` p8 R/ j4 C/ Sor "corporation".0 }$ z0 @" l* `: ?) m
The word "limited" correctly describes the idea of limited liability, when a corporation is# y$ |# p* k4 {+ ~ A1 ]
formed. Unlike the sole proprietorship and partnership when a corporation is formed, the
" S. |' l- y7 A! Bindividual or the persons forming it are only liable for the amount of investment made by them,
3 k2 X1 B2 Y0 J6 z7 _- f8 i- Fin the corporation. In case of financial problems arising, the judgment can be enforced only% T# k9 U8 T8 E! P" Y$ {3 v
against the assets and property owned by the corporation, and the assets of the individual and6 [! q/ H% m9 q- d$ H3 `
his home cannot be touched. This is the most important reason for forming a corporation, as
k! X3 B E8 ~9 P, t+ f. M9 B! Pmost people wish to protect their personal assets against the risks of the business./ ~! r7 I4 K0 ^1 @! U
A corporation offers a variety of tax planning benefits. The most common benefit derived is the; E. x) x- V1 D1 C; _" X& b: _
possibility in a small company, of splitting the income between the husband and the wife.. l) J% D$ V, M4 L+ H! ]) ~2 I
Under the attribution rules of the Income Tax Act, the income derived by the wife is deemed to: R( T3 z/ }+ a
be that of the husband, but where a corporation is formed, and the wife works for the
+ o+ ~4 L. n' g$ j w* c* t' ?+ Ecorporation, it is legally possible for the husband to divert a certain amount of income to the! l- j- \7 w/ h
wife, provided that she is doing some work in the company.
, R; ^( O9 K/ D" E; }( t/ ~& YA corporation is also in effect, an estate-planning vehicle. By issuing common shares to8 } P$ r6 Z6 D! p: l9 j
children in trust, the growth value of the shares of the corporation can be transferred to the+ J2 i; v* n% K U) G# A( b
children without incurring inheritance taxes under Succession Duty Act, and Income Tax Act.
. o" Q- a6 j1 N1 J l2 x& HA corporation can be formed either under the Canada Business Corporations Act, or the9 R3 T/ N# s. d" M; Z, E
Provincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
2 b/ F1 t4 ?2 P: Y+ V! k/ B6 Lcompany is desirable where it may, in the future, have head offices in various provinces. A7 ~# ?9 f) H8 `% |
federal company does not require extra-provincial licenses to operate in different provinces. It5 e6 L1 _" f/ I0 R3 G
does require, however in Ontario, a Licence In Mortmain. This license is required when the
% `9 }7 d N3 b( i$ Tcompany owns or rents property in Ontario. The Ontario corporation does not require such+ Z* z& e. j R+ p
license to operate within Ontario, but may require extra-provincial license to operate in other! R0 v* e: T5 M% c9 {% i a# ]
provinces, except Quebec.
+ z V i, h& _38 p: g/ I8 o; ^7 u# N! B' T9 w
It is now possible for a one-man person to form incorporation and he may be the sole director) Q6 T8 m- {4 W3 ]( W
also the sole shareholder in that company. Where there are more shareholders, a difficult9 w, I% F# Z, W4 U3 Y
decision to make is the proportion of shares owned by each shareholder in the company. A 51%& N# {7 u( R! n& I/ ~/ k$ P7 g
control usually gives the right to such shareholders to elect the board of directors and
' h, X, N B. _accordingly, exercise effective control of the operations of the business.
" a* w4 D2 `) V! w9 W- dThe directors of a company are responsible to the shareholders and must hold an annual+ S1 U: H5 l1 @7 A
general meeting each year, even if there are only one or two shareholders, who might be the
2 }' r2 L1 N& H& j3 vsame persons as the directors.
4 J" m6 v. N }- rWhere there are two or more shareholders in a company, a buy-sell agreement or some% S0 d* }5 f: H1 j
shareholders agreement is very desirable. Such agreement can set out how a party can
. ^# Q" j! J9 U- I4 Lwithdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.) u" r; O5 o) `1 h) [" M
This agreement is commonly ignored by shareholders until a dispute arises, when it is usually
. f( f! q) Z9 h r# S2 rtoo late.
( A6 Z/ h% h9 E& @! X0 A# k5 P" R' Y" wCompetent, legal advice is desirable in forming a company, as the procedure is not simple as/ f+ c/ D/ f) W
the registration of partnership or proprietorship is.
: j+ E! _* O5 M7 ]5 ^9 Q1 G* k0 cChauhan & Associates
- O! \ Y/ m9 D3 wBarristers and Solicitors: T+ j6 I- Z9 x, p) j$ D
330 Hwy. No. 7 East, Suite 3095 I& R: o8 p0 U& U2 C
Richmond Hill, Ontario7 ]! L$ G; s) R) N+ z+ b; O5 S
L4B 3P8: ?3 n, v; S7 H. g' T4 @3 J0 o* h. d/ g
Tel. (905) 771-1235
% P: I8 `) L7 _% Z' ?- ~: QFax (905) 771-1237
9 X& r2 y, C7 T3 t' l5 G: \Email: globalmigrations@hotmail.com5 n8 y( @4 s2 z
4" B4 S* n9 [. O
PARTNERSHIP MEMO3 P$ k6 c& O6 l/ E9 w
REGISTRATION REQUIREMENTS
3 T% U4 S- s) L/ _Where two or more persons are engaged in a business activity, it is known as a& n4 X4 |% h) O( C+ t% [
partnership. They must register the business name if names other than their own names are5 }9 [+ `' d3 O9 w& }) G5 B2 s; T; Y
being used to conduct the business activity. Partners must sign the declaration form.7 Y1 A! } w- W1 r1 t+ U
Registration is valid for 5 years. If the partnership is not registered no action can be brought by
- `3 d0 ]3 b4 V; w N# g1 X, Wthe partnership against a debtor for recovery of money until the partnership is registered.
! `8 f7 p- a. Q) x0 I+ GIf you want me to assist you in the preparation or registration or partnership please let9 c9 M! P/ V7 H$ f; ~
me know.
! C8 M! y2 Z5 S5 M5 j2 q u& \LIABILITY
# Y; `) ?. e7 O- h8 w- U8 iEach partner remains fully liable for the debts of the partnership, regardless of which
- Q# }, K% {- C) c& Spartner incurred the liability. In the event of financial difficulties, a judgment can be enforced2 ^5 n1 G7 D* m3 w A) I2 {2 R
against each and every partner. If any one partner does not have nay money, the other partner4 t% F* ?& |# h
who has the property and personal belongings and a house would have to meet the liability.1 N) A* w( Z& J1 c c9 u, q& y: j
Using the name company for a partnership does not eliminate personal liability.
$ Y& s1 n) n, i6 ^TAX2 P' @9 u4 {. g& ]- y0 W; C
Each partner is liable to pay tax on his share of the profit made. Expenses are deducted
d! H/ s% X. o: g Tfrom the profit and the share of net income of each partner is declared on his tax return.
' {( I$ P( w6 k9 k( rPartnership can have a different fiscal year than the calendar year.8 ^4 h4 @. L- t9 e" N& ?
AGREEMENT ~4 U' d4 c3 ^1 {5 |) d
It is very desirable for the partners to have a partnership agreement. It should set out3 D( i% A$ a8 v7 M0 {& B g* ^
the basic terms of the partnership arrangement, including what business will be conducted,
, [- y! I2 w* m# eprofit and loss sharing formula, whether the partnership will continue on the death of a party,( |0 V' ~) T* U
where the account of the partnership will be maintained, and if any partner is to be employed* v1 c# `8 a; @" p
full-time, what salary he may expect. If a partnership agreement is not provided, the provisions2 [' E/ j7 c: t k
of the Partnership act will apply. Without an agreement the partnership would dissolve on the
+ @ J/ y* _2 Q. adeath of a partner. The partnership agreement should also provide for a formula by which in
: b- Q8 m6 e8 B( F) W$ Rthe event of disagreement a party can withdraw from the partnership. Where no agreement is
2 t2 r V) P. x6 M* z7 Y2 q) W, Sprovided, any partner could simply register dissolution of partnership and terminate the j3 o( j5 S9 J$ V7 M( p
partnership arrangement. Legal advice is desirable in drafting a partnership agreement., R7 w# f* V' }% ~4 o% i
INCORPORATION
% _! ]+ y9 W8 Y+ H+ d; c, m. x9 r+ GIncorporation is often referred to as a limited company. When a limited company is
5 \5 P( z( L8 q5 [; s& y8 F! N9 @formed, it creates a separate legal person, and has a different legal existence. A corporation
+ _; ?$ ?- h- D* q2 F4 Fmay be identified by the use of the words "limited", "incorporated", or "corporation".
/ q" k5 z/ t" R! h+ l9 o5
9 d) K1 S" R Z! I6 M; c( I ZThe word "limited" correctly describes the concept of limited liability of a corporation.
2 U6 ^- V% H* FUnlike the sole proprietorship and partnership when a corporation is formed, the individual or
% G2 B7 ~- X% z, Y) K; Cthe persons forming it are only liable for the amount of investment made by them in the# S6 o2 v# S1 ~* t: V' G8 ?. e; V. G
Corporation. In the event of financial problems arising, the judgment can be enforced only) J7 Q7 }) B& f8 C- t7 P( H" T
against the assets and property owned by the corporation, and the assets of the individual and+ d% l: C& F4 p+ G
his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible.6 s$ o9 i' j! |+ {
The most important reason for forming a corporation is to protect personal assets against the
* q1 V/ f* f% B6 b& u6 _; E+ M; zrisks of the business.
5 o C4 V! G! b5 NIt is now possible for a one-man person to form a corporation and he can be the sole* O$ J S0 \' h& M$ b, c) k
director and also the sole shareholder in that company.8 C# P5 v( z9 q- @+ c5 f+ x
A corporation is more expensive but desirable for the protection of personal liability.5 u' Q: f9 G0 N, L+ Q
Jay Chauhan8 s1 a' h3 `2 t% q7 F
Barrister and Solicitor
, K# a' q. d" y4 I' c3 C330 Highway 7 East, Suite 309
: G' E9 }7 `* |0 E b* Q$ ~4 y5 d% YRichmond Hill, Ontario A7 D/ k/ i1 Y9 A9 ]# I' x
L4B 3P8$ W5 p8 a, i* q/ v
Tel.: (905) 771-1235
$ d3 ]9 `$ b+ |9 _Fax: (905) 771-1237
6 m) T, f/ P4 }( b t X9 a& g: \Email: globalmigrations@hotmail.com |
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