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1. there are three kinds of partnerships:+ b$ i( K' w n, P8 z
General Partnership, Limited Partnership, and Public-Private Partnership* K! @" E( J! K# P
See details on http://www.alberta-canada.com/investlocate/1012.html9 _4 O' }- `+ C$ w; B: k6 ?- b
2. See the article:
6 \- \5 H, h lPROPRIETORSHIP, PARTNERSHIP AND INCORPORATION
$ x9 K7 h c$ z0 [By Jay Chauhan& Q* G5 Q" ?' S1 T% i$ S
LEGAL FORMS OF BUSINESS ORGANIZATIONS
/ b7 r/ b0 k8 w% `There are three basic ways in which a business organization can exist, namely a sole: F" Z$ ]& r. e# h' z" ]2 O
proprietorship, a partnership, and a corporation. A sole proprietorship is where one person) C8 W* b3 t5 u3 }4 Z! K% ^
using his own name or any other name, conducts business. In a partnership, there are two or9 X" K$ ?1 B2 D: [
more persons carrying on a business activity under their own names or the name of a" J& [& j: R; J4 ~
partnership. Incorporations are for legal purposes and entirely separate, legal entity created by% K0 F* W2 L2 }6 ~7 U( L
law and can be used by a single person or more persons together.
3 r7 p0 d4 h( r& o- jSOLE PROPRIETORSHIP
2 c7 f2 n8 f* W1 u. QIf a one-man operation uses a name different that his own, he must register this name under the% w# D5 Z: r9 L1 I6 d! y! s
Partnerships Registration Act at 555 Yonge Street, Toronto. The form is relatively simple, and it
( ?( Z; S9 ]' r0 t$ t6 Ecan be done by the individual at a minimal cost of $10.00. In case of financial difficulties, the* q. e' h. {3 [1 D+ p
individual remains personally liable and his home and personal assets can be used to satisfy a
. r" ~* H# ? D- v h6 W, z( o1 G& Ejudgement. The registration lasts for five years, and must be renewed at expiry.
. B% ]9 |4 p1 D0 W2 H0 m9 vIt is possible for a sole proprietor to call his business by a name such as "ABC Company". The: h- J1 N4 z% e# D* k( F/ S
fact that the word "company" is used does not provide any extra legal protection as
) W4 e5 Z- Q8 P' f, W6 a ?8 [: Wincorporation does, and this is commonly misunderstood by many. For tax and legal purposes,
% h0 N! T ^: P7 f/ p7 T) Mthe sole proprietor is the same as the individual, even if he uses a different name.
8 t% \ n8 T: C9 ` S5 NPARTNERSHIP
0 ?+ v8 ?9 t' Z+ ~. dWhere two or more persons are engaged in a business activity, it is known as a partnership.
) @6 P* {8 V5 S3 I+ ^, Y# YLike a sole proprietorship, they must register the business name if names other than their own
& ?% d$ w# H; Y0 D/ x. I8 l! L: {are being used to conduct the business activity. The same provisions of registration apply and
# e. Y5 M: V$ E0 o S; |# {each partner must sign this form and such declaration lasts five years. Here again, if the word
g4 P' U; f( R! D8 S"company" is used at the end of the name, it provides no extra protection, like incorporation.7 m1 U; e; L# T5 G4 m* q
Each partner remains fully liable for the debts of the partnership, regardless of which partner+ ?7 g; V3 e+ o8 M! Q! I6 f% d4 O
incurred the liability. In case of financial difficulties, the judgement can be enforced against+ Z( u9 P. C# L1 k8 n) W% q- A/ d
each and every partner and if any one partner does not have any monies, the other partner who
1 L4 l4 Y2 |+ H4 U$ x* N0 U) |has the property and personal belongings and a house, he would have to meet the liability.3 F) d1 z/ k- i3 E5 q N5 M+ A6 J" w9 D
Each partner is liable too pay tax on his share of the profit made. For legal purposes, the
7 N, S# _7 k. ^6 P7 t8 g/ X! x8 Nliability is full, despite the percentage of partnership interest.
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It is very desirable for the partners to have a partnership agreement, which sets out the basic% X9 c7 y% r5 Y- D
terms of the partnership arrangement, including what business will be conducted, profit and/ H/ D5 k: u1 U3 T- H& O
loss sharing formula, whether the partnership will continue the death of a party, where the) ]' E8 N, d$ I/ [# h; q
account of the partnership will be maintained, and if any partner is to be employed full-time,
) F' S u S9 X( X* h8 twhat salary he may expect. If a partnership agreement is not provided, the provisions of the: d* Y. r+ f1 n+ r6 I
Partnership Act will apply, and in such events, the partnership will dissolve, for example, on
% T* F! o4 H, [. G: |) Sthe death of a partner. The partnership agreement also would provide for a formula by which" F# x/ i8 T7 f+ L/ `- T, _
upon disagreement, a party could withdraw from the partnership. Where no agreement is+ ]* p5 F5 ~# S# T
provided, any partner could simply register dissolution of partnership and terminate the. @1 H* @! H1 D z
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.2 m8 ^2 j& ^2 q0 i$ l
In case of failure of a partnership to register a business name, no action can be brought by the
/ j6 H6 i+ V ~& Z* wpartnership to sue a defendant, who fails to pay them.
; \7 t( R# S' c- }INCORPORATION
$ O$ E* x- _3 S, G# } PIncorporation is often called a limited company. When a corporate body is formed, it creates a' I2 }: H j6 Q
separate legal person, and has a different legal existence than the person or persons who formed
: Y; t" r# D. D9 q5 m$ e* Jthat legal entity. A corporation may be identified by using the words "limited", "incorporated",
3 H9 v' G) G' l I V- c6 F0 S3 l# por "corporation".3 h6 y1 o; j. F9 c1 m2 ^
The word "limited" correctly describes the idea of limited liability, when a corporation is5 e% D5 M! e, V4 h) o" |
formed. Unlike the sole proprietorship and partnership when a corporation is formed, the1 x* {" t4 S r6 _5 J' v- J
individual or the persons forming it are only liable for the amount of investment made by them,
, f/ T! a2 u4 v- win the corporation. In case of financial problems arising, the judgment can be enforced only& G8 K$ R4 m, i% {$ |
against the assets and property owned by the corporation, and the assets of the individual and
# Y7 j. r$ Q) Z# whis home cannot be touched. This is the most important reason for forming a corporation, as
7 X! O) b( B3 m% d1 K3 qmost people wish to protect their personal assets against the risks of the business.
% \. V5 a5 U9 W8 ? ]& [/ wA corporation offers a variety of tax planning benefits. The most common benefit derived is the
# `# v, |; n$ b/ h' epossibility in a small company, of splitting the income between the husband and the wife.
& N7 n* k! V5 \! R: A* Q/ x' ]. zUnder the attribution rules of the Income Tax Act, the income derived by the wife is deemed to% U" p+ Y3 y X8 d) @8 _" ?1 M
be that of the husband, but where a corporation is formed, and the wife works for the
" ~9 [: k- W1 _corporation, it is legally possible for the husband to divert a certain amount of income to the! T/ ?% ~- d Q$ `6 M
wife, provided that she is doing some work in the company.
: x+ x6 j0 K$ y8 {A corporation is also in effect, an estate-planning vehicle. By issuing common shares to
2 l( O, V( r4 ]8 {& U; Wchildren in trust, the growth value of the shares of the corporation can be transferred to the( l [! q. @3 m
children without incurring inheritance taxes under Succession Duty Act, and Income Tax Act.
1 @1 F8 Z4 }; b* cA corporation can be formed either under the Canada Business Corporations Act, or the" m( z9 r; n2 q- _/ ^
Provincial Legislation, and in Ontario, the Ontario Business Corporations Act. A federal
5 u( B% \: F$ v- K# Ucompany is desirable where it may, in the future, have head offices in various provinces. A
, |9 ~1 q6 _$ ?, R6 s& X- rfederal company does not require extra-provincial licenses to operate in different provinces. It
" H0 j4 L! O$ x! s% U4 y6 Udoes require, however in Ontario, a Licence In Mortmain. This license is required when the
) q6 g* ?8 T$ A' r7 |company owns or rents property in Ontario. The Ontario corporation does not require such
5 i1 p+ [# m; b2 z! Q9 Z1 V0 klicense to operate within Ontario, but may require extra-provincial license to operate in other
; _- Y* {: |% H# F" y6 dprovinces, except Quebec. w5 t: Y/ r* K) Y( O- s
3- g# c+ A' `9 R" L' w2 T+ |$ K
It is now possible for a one-man person to form incorporation and he may be the sole director4 ^; d+ g' L( T% P
also the sole shareholder in that company. Where there are more shareholders, a difficult- a9 `1 V B+ ?- d5 y
decision to make is the proportion of shares owned by each shareholder in the company. A 51%
0 k) k4 p7 u5 E! gcontrol usually gives the right to such shareholders to elect the board of directors and/ K. s! C) U9 O3 @) p7 n+ b
accordingly, exercise effective control of the operations of the business.
- ^- ~" z: Y$ ZThe directors of a company are responsible to the shareholders and must hold an annual; M6 x- h# o b# I, }9 U1 \* K
general meeting each year, even if there are only one or two shareholders, who might be the" t, [5 g3 L! M
same persons as the directors.* ] h3 ^2 j/ R* [. n
Where there are two or more shareholders in a company, a buy-sell agreement or some& m# b' | D5 ]; I
shareholders agreement is very desirable. Such agreement can set out how a party can- {) w0 W* s' g# J* I
withdraw as a shareholder, or how the shares will be disposed of upon death or disagreement.% s' U# f: G: J: K7 Z
This agreement is commonly ignored by shareholders until a dispute arises, when it is usually% n+ s6 E' @7 _" \3 J6 {, p
too late.
+ C4 N0 U( ?: t/ T0 O V, y( aCompetent, legal advice is desirable in forming a company, as the procedure is not simple as
3 z6 s' E% ?& _9 hthe registration of partnership or proprietorship is.) T; O( L- F, {, |
Chauhan & Associates6 |8 ^0 U2 C) W% W
Barristers and Solicitors3 x0 o+ @( O5 W
330 Hwy. No. 7 East, Suite 309
, t1 E- `7 m: | E' m& ZRichmond Hill, Ontario
" `, M3 I. \" a% `L4B 3P8
# L/ U3 X5 c" a. n; |1 B8 |3 E7 }5 dTel. (905) 771-1235) I" M, b E& B/ `
Fax (905) 771-12379 a* g9 C V+ y, m; h- v/ u
Email: globalmigrations@hotmail.com
: F G8 F1 f* Q" E# H+ ^& j- {4
$ K3 `, F5 _0 O5 q# rPARTNERSHIP MEMO5 C0 i# S' Z% v* y
REGISTRATION REQUIREMENTS
* q$ u" I6 C) a) E& cWhere two or more persons are engaged in a business activity, it is known as a+ F" Y: H3 h0 F5 {+ X- w8 p
partnership. They must register the business name if names other than their own names are+ l) x, d4 Q$ j
being used to conduct the business activity. Partners must sign the declaration form.7 L; U; t7 u. J9 J9 V) F2 _
Registration is valid for 5 years. If the partnership is not registered no action can be brought by* _$ B! E" m! O0 G6 b2 L; m
the partnership against a debtor for recovery of money until the partnership is registered.
7 Y, o7 G& ?. ]% k3 }: uIf you want me to assist you in the preparation or registration or partnership please let+ P7 r/ Z4 e+ \" n
me know.
# j/ P5 l; P5 L p1 |# V5 fLIABILITY# S, W9 b& ]% }) Z D* c8 e e s
Each partner remains fully liable for the debts of the partnership, regardless of which
8 B- A1 H* n. F0 e- epartner incurred the liability. In the event of financial difficulties, a judgment can be enforced5 i4 X8 r& u, J4 e( O# k! ?4 T9 j
against each and every partner. If any one partner does not have nay money, the other partner
+ T! W% _/ |( s2 w1 l" U9 _who has the property and personal belongings and a house would have to meet the liability.) P- d$ O% u5 V; _
Using the name company for a partnership does not eliminate personal liability.
5 t" Q* c2 A3 M& E+ X5 L5 E" gTAX
' J/ V& R6 w: w0 G' r* WEach partner is liable to pay tax on his share of the profit made. Expenses are deducted
# p( Y9 y; w, ^2 V, H6 ~from the profit and the share of net income of each partner is declared on his tax return.7 ?. `1 b0 F' R- G+ X0 R% L8 _
Partnership can have a different fiscal year than the calendar year.0 B# o6 F7 ?8 @& {
AGREEMENT6 J7 `8 W! ^- b5 l0 Y/ U# z$ o
It is very desirable for the partners to have a partnership agreement. It should set out0 q/ e8 }- s }
the basic terms of the partnership arrangement, including what business will be conducted,
: |+ m, t# c& L1 _6 p% N/ qprofit and loss sharing formula, whether the partnership will continue on the death of a party,
& q+ r! Q j0 W `$ ~" q2 rwhere the account of the partnership will be maintained, and if any partner is to be employed
+ r0 i9 u( F( o8 e& ?4 Cfull-time, what salary he may expect. If a partnership agreement is not provided, the provisions: C+ A3 ?; D, n" ^
of the Partnership act will apply. Without an agreement the partnership would dissolve on the
6 q; E0 l K! t$ ]- Ydeath of a partner. The partnership agreement should also provide for a formula by which in
/ W4 ~; {9 H0 T- mthe event of disagreement a party can withdraw from the partnership. Where no agreement is% [9 F- j$ f4 A) y6 J
provided, any partner could simply register dissolution of partnership and terminate the7 H0 D3 p5 [; Q: ^
partnership arrangement. Legal advice is desirable in drafting a partnership agreement.
: K9 U: y. V8 U! _4 A* W1 uINCORPORATION
1 t+ W9 e; n$ D R; F: R# N* ~( I1 OIncorporation is often referred to as a limited company. When a limited company is
: Y" N8 T( _- p5 X: Mformed, it creates a separate legal person, and has a different legal existence. A corporation+ g/ x8 ^# @8 @" a+ X8 G/ }
may be identified by the use of the words "limited", "incorporated", or "corporation".3 I3 s7 K0 ]! i V; E* V
5) K# R W0 J5 r9 K) @
The word "limited" correctly describes the concept of limited liability of a corporation.
' [* }) X& a& o0 N1 fUnlike the sole proprietorship and partnership when a corporation is formed, the individual or( g2 x! l6 K! h% ~% @
the persons forming it are only liable for the amount of investment made by them in the
' R4 x% O/ X- \ e; VCorporation. In the event of financial problems arising, the judgment can be enforced only
6 X* P0 B6 i0 I3 V# r4 N- oagainst the assets and property owned by the corporation, and the assets of the individual and5 z4 `4 v0 j( }4 J6 G1 N
his home cannot be touched. To ensure this, personal guarantees should be avoided, if possible." z. }6 S: `" t
The most important reason for forming a corporation is to protect personal assets against the! C- g4 }& L8 p3 i. P7 {2 g8 S, Z; a
risks of the business.
: R8 }. V3 y/ c" R0 c$ cIt is now possible for a one-man person to form a corporation and he can be the sole1 v: N2 c+ J, i- L3 h/ F
director and also the sole shareholder in that company.' _7 O4 C& i; S, } w
A corporation is more expensive but desirable for the protection of personal liability.
8 O. \. a s3 q/ |9 ~: IJay Chauhan
* \, @# o% c3 ]" X" R1 BBarrister and Solicitor; G/ u5 u5 |: T2 a& Z! n
330 Highway 7 East, Suite 309 v9 T. M" B o1 j! I3 S" ]
Richmond Hill, Ontario* w3 G' i1 ^ f' y3 M. @ ^5 I
L4B 3P84 T" l9 t. n+ p$ c
Tel.: (905) 771-1235
- Z0 ]0 Z/ a7 k; c8 `; eFax: (905) 771-1237; I& Q9 w5 \2 w7 I
Email: globalmigrations@hotmail.com |
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