Choose the Right Business Structure for Your Company

Young Businessman Signing a Contract | One80Law Group

Launching a business is an exciting time. You’ll be brimming with ideas and excited to get started. But before you do anything, you should consider the legal structure of your business. If you’re not sure what this means, we’ve put together this guide to help you.

What is a business structure?

When you set up your business, you will decide the legal structure of the business. This dictates how the business is owned. The easiest way to understand this is by looking at the examples of structure types.

1. Sole Proprietorship

If you’re going into business alone, you might be considering operating as a sole proprietor. This is the most basic form of business structure.

You run the business alone and are entitled to all the profits. The drawback being that you’re also the only person responsible for the debts and obligations of the business. In addition, you are not a separate legal entity from the business so if the business is sued, you could be personally liable. The risk here is if you own a home (or other valuable asset) and run a business as a sole proprietor. If the business gets sued, your home could be at risk.

This highlights a key reason you should consult with a legal professional about setting up your business, so you’re able to consider future implications.

2. Incorporation

Incorporation creates a new legal entity, separate from the people who created it. This means you can limit your personal liability, issue shares and also seek investment.

It can also be a tax advantage to incorporate a company. However, there are also drawbacks. There are additional responsibilities such as company filings and completing a separate income tax return for the company.

From choosing a company name to understanding the difference between a named and numbered company, there are a lot of important details to understand about incorporation. If you have questions, speak to One80 Law and we’ll guide you through the process.

3. Partnership

A partnership is when there are two or more people (partners) who carry on the business together. In Canada, each province has its own laws about partnerships.

A general partnership has a key difference compared to a corporation. A partnership does not become a distinct legal entity. The partners themselves remain liable for the debts and obligations of the partnership.

There are other partnership types known as limited partnerships and limited liability partnerships. If you want to start a partnership, speak to One80 Law to understand more about the implications. We can help you get the partnership registered.

How do I decide the right business structure?

Firstly, speak with the people you’re setting up the business with. It’s best to have an open and honest conversation about what you’re contributing to the business in terms of time, money and resources. Also, discuss situations that might arise in future. How will profits be divided? What if one person wants to leave the business? What if one person becomes disabled or dies? What will you do if the business is not profitable? Do you want to seek investment in the business? What will be your process for making business decisions? What will you do if there is a disagreement in the direction stakeholders want to take the business? It’s important to discuss who will be responsible for what aspects of the business.

Secondly, arrange a meeting with One80 Law to get expert advice on your business plans. We’ll discuss the potential structures with you and give you our advice about which is the right structure, and what else you might want to consider. We’ll answer all your questions, and get the paperwork registered for you.

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