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There’s no question that starting your own business can be a complicated and nerve-racking venture. One of the most important decisions you’ll have to make in the early stages is deciding what type of business structure best suits your new business. In Ontario, there are three different types of business structures: sole-proprietorships, partnerships, and corporations. Each type of structure has its advantages and disadvantages, and it’ll be up to you to strike the right balance for your business.
This type of business structure is as it sounds: you are the sole owner and are duly entitled to all the profits generated from its business. Conversely, you are entirely responsible for all its debts, liabilities and obligations. Unlike corporations, you are personally liable for the company, and therefore, a creditor will be able to make both a claim against your personal assets, as well as your business assets, in order to satisfy any outstanding debt that is owed to them. That is the main distinguishing feature between a sole proprietorship and a corporation: under a corporate structure, your personal liability for the business’s debts and obligations are limited to the financial investment that you’ve made in it, whereas under a sole proprietorship, you remain entirely liable for the business’s debts and obligations.
Put simply, a partnership is a type of non-incorporated business that’s created by two or more individuals for the purpose of carrying on a business. Under this type of business structure, your finances will be combined with those of your business partner(s). As such, you and your partner(s) will share in the business’s profits based on the apportionment provisions of the partnership agreement.
Not all partnerships are created equal, however. In fact, there are three different types of partnership structures in use in Ontario today, each with its own unique features and purposes. The first type is known as a General Partnership, wherein each individual partner is said to be jointly liable for the debts and obligations of the partnership. In other words, your personal liability for the business’s debts and obligations is shared equally with your partner(s). In a Limited Partnership, however, allows you to contribute financially to the business without being directly involved in its operations. In other words, your contribution to the business will be of a financial nature only, as opposed to both financial and managerial. And lastly, in a Limited Liability Partnership, your liability for the business’s debts and obligations is limited to your investment in the partnership. This type of partnership (LLP) is typically available only to professionals, like lawyers, accountants and doctors.
When seeking to establish a partnership, you should ensure that you codify each partner’s rights and obligations in a partnership agreement. It cannot be stressed enough how important a partnership agreement is to the proper functioning of a partnership, seeing as how it codifies the terms of the partnership agreement, which can avoid costly legal disputes in the event of a falling-out. You should seek the assistance of a trained Toronto Business Lawyer to help you draft a partnership agreement.
Probably the most common of the business structure is the company, or corporation. Corporations can be incorporated at both the federal level, as well as the provincial/territorial level. The legal effect of incorporation is to give the company its own legal identity, separate from that of its owners (known as shareholders). Unlike partners in a partnership and the owner in a sole-proprietorship, the shareholders of a corporation will not be liable for the debts, obligations or actions of the corporation. In fact, the roles of owner and manager are purposely separated in the corporate structure, as often times the owners (shareholders) do not participate in the management or operation of the company.
Are you in need of a Toronto Business Lawyer to help you structure your new business? We can help! At LawyerSelect.ca, we work with many competent and driven Toronto Business Lawyers, and we’d be happy to find the most suitable candidate for your business law issue. Call us anytime at 416-419-6959, or visit us at LawyerSelect.ca.