Advantages
and Disadvantages of a Proprietorship
Advantages
and Disadvantages of a Partnership
Advantages
and Disadvantages of Incorporating
Registering
a Proprietorship or Partnership
Registering
a Corporation or Limited Company
From a legal point
of view, there are three common types of businesses:
sole proprietorship, partnership and corporation. Each
has different and important implications for liability,
taxation and succession. A lawyer or accountant can
advise you on which is suited to your needs and help
you set up your business.
For
specific information on how or where to register or
incorporate a business in your area, contact your local
Government Agent Office or the provincial Corporate
Registry at (250)387-7848.
Advantages and Disadvantages of Proprietorship
Starting a proprietorship is the simplest way
to set up a business. A sole proprietor is fully responsible
for all debts and obligations related to his or her
business. A creditor with a claim against a sole proprietor
would normally have a right against all of his or her
assets, whether business or personal. This is known
as unlimited liability.
In
a proprietorship, one person performs all the functions
required for the successful operation of the business.
The proprietor secures the capital, establishes and
operates the business, assumes all risks, accepts all
profits and losses, and pays all taxes. The proprietor
is said to be self-employed.
Advantages:
- Low
start-up costs
- Greatest
freedom from regulation
- Owner
in direct control of decision making
- Minimal
working capital required
- Tax
advantages to owner
- All
profits to owner
Disadvantages:
- Unlimited
liability
- Lack
of continuity in business organization in absence
of owner
- Difficulty
in raising capital
- no
name protection
Advantages and Disadvantages of Partnership
A partnership is an agreement in which two
or more persons combine their resources in a business
with a view to making a profit. In order to establish
the terms of the partnership and to protect partners
in the event of a disagreement or dissolution of a partnership,
a partnership agreement should be drawn up. Standard
form partnership agreements can also be purchased at
most stationery stores. Partners share in the profits
according to the terms of the agreement.
In
a General Partnership, two or more owners share the
management of a business, and each is personally liable
for all the debts and obligations of the business. This
means that each partner is responsible for, and must
assume the consequences of the actions of the other
partner(s).
A
second type of partnership is a Limited Partnership
which involves limited partners who combine only capital.
They are not involved in managing the business and cannot
be liable for more than the amount of capital they have
contributed. This is known as limited liability.
A
limited partnership also involves general partners,
who are involved in management. They are fully liable
for the debts and obligations of the business, but may
be entitled to a greater share of the profits.
Advantages:
- Ease
of formation
- Low
start-up costs
- Additional
sources of investment capital
- Possible
tax advantages
- Limited
regulation
- Broader
management base
Disadvantages:
- Unlimited
liability
- Divided
authority
- Difficulty
in raising additional capital
- Hard
to find suitable partners
- Possible
development of conflict between partners
- Partners
can legally bind each other without prior approval
- Lack
of continuity
- no
name protection
Advantages and Disadvantages of Incorporating
A corporation, also known as a Limited Company,
is a legal entity which is separate and distinct from
its members (shareholders). Each shareholder has limited
liability. A creditor with a claim against the assets
of the company would normally have no rights against
its shareholders, although in certain circumstances
shareholders may be held liable. It is recommended that
legal advice be sought.
Ownership
interests in a corporation are usually easily changed.
Shares may be transferred without affecting the corporations
existence or continued operation.
The
following characteristics distinguish it from a partnership
or proprietorship:
Limited
liability - normally no member can be held personally
liable for the debts, obligations or acts of the corporation
beyond the amount of share capital the members has subscribed;
and
Perpetual
succession - because the corporation is a separate legal
entity, its existence does not depend on the continued
membership of any of its members.
Advantages
- Limited
liability
- Possible
tax advantage (if you qualify for a small business
tax rate)
- Specialized
management
- Ownership
is transferable
- Continuous
existence
- Separate
legal entity
- Easier
to raise capital
Disadvantages
- Closely
regulated
- Most
expensive form of business to organize
- Charter
restrictions
- Extensive
record keeping necessary
- Possible
double taxation of profits
- Shareholders
(directors) may be held legally responsible in certain
circumstances
- Personal
guarantees undermine limited liability advantage
Registering a Proprietorship or Partnership
Proprietorships and Partnerships are regulated
by the Provincial Government under the Partnership
Act.
Which
businesses must register? If you choose to
carry on a business under a name other than your own,
you generally need to register.
For
trading, manufacturing and mining, the Partnership Act
requires you to register a General Partnership with
the Registrar of Companies. Contact the Registrar if
you require clarification.
A
BC Limited Partnership is not formed under the Partnership
Act until a certificate has been filed with the registrar
of companies. This certificate must be signed by each
person, and state who is to be a general partner when
the partnership is formed. A Notice of Registered Office
must accompany the certificate.
A
limited partnership formed outside of the province may
carry on business in B.C. if registered under the Partnership
Act.
Third
parties often require registration for use of a company
name.
Examples include opening a bank account, registering
a motor vehicle, opening a day care and bidding on some
government contracts.
Partnership
Act This Act provides for the formation
of a Sole Proprietorship, General Partnership or a Limited
Partnership for people going into business. It does
not enable entry into the marketplace or provide licensing.
The Partnership Act also governs the registration of
these businesses. It states that the Registrar shall
not register a business name that is already a name
by which a corporation is registered in British Columbia
or a name that so nearly resembles that name that, in
the opinion of the Registrar, it is likely to confuse
or mislead. The Act also says that a name shall not
be approved if the Registrar disapproves of the name.
In
a proprietorship, one person performs all the functions
required for the successful operation of the business.
The proprietor secures the capital, establishes and
operates the business, assumes all risks, accepts all
profits and losses, and pays all taxes. The proprietor
is said to be self-employed. In a partnership, two or
more people or corporations combine their talents and
resources to conduct business.Responsibility for all
aspects of the business is usually shared among the
partners, regardless of the amount of capital contributed
by each individual. Each partner is also responsible
for debt incurred by another of the partners.
A
limited partnership is a special type of partnership
in which there may be one or more general partners and
one or more limited partners. Limited partners cannot
be held responsible for the liabilities of the partnership
beyond the amount which they have committed to invest.
Limited partnerships are normally established by a formal
agreement between all of the partners.
Registration
Process To register a proprietorship or a partnership
you will need to obtain a Name Approval Request Form
along with a Statement of Registration
of General Partnership or Sole Proprietorship form.
(link to forms below)
Complete
the Name Approval Request Form first and either mail
it to the Registrar of Companies in Victoria, or take
it to your local Government Agent. (Fee: $30.00 - may
be more elsewhere)
When
this form is returned to you with one of your choices
reserved (usually within two to three weeks - or one
day if completed at the Business Service Society),
complete the Statement of Registration of General Partnership
or Sole Proprietorship form and submit it within 56
days of the Name Reservation Date.(Fee: $40.00 or $165.00
for Limited Partnerships - may be more elswhere - can
be done online at www.onestopbc.ca)
The registrar will not begin the process until the fees
have been paid. For both forms of partnership, registrations
consist of filing the registration form signed by all
partners.
Why
does the business name have to be approved? The
approval process prevents the use of names which are
so similar to corporate name as to confuse or mislead
people, and provides a record which allows the public
to determine which individuals are behind the name.
The
Act also says that a business name shall not be approved
if the registrar disapproves of the name. Under the
Partnership Act, the registrar does not have the power
to order a change of a name once it has been registered.
It
is important to know that business names registered
as sole proprietor / general partnership do not
have the same protection as corporate names.
A corporation may be registered under the same name
as a business - but a business name won't be accepted
if it can be confused with a corporate name.
It
is also important not to confuse a business name/trade
name (either a proprietor/general parnership or a corporation)
with a trade-mark. A trade-mark is a word,
symbol, or design, or combination of these, used to
distinguish the wares or services fom those of others
in the marketplace. Only the registration of
a trade-mark gives its owner exclusive rights of use.
More information
on trade-marks may be found at:
CONTACT
Registrar of Companies
2nd Floor-940 Blanshard Street,
Victoria, BC
Mailing
address:
PO Box 9431 Stn Prov Gov
Victoria, BC
V8W 9V3
Tel:
(250) 387-7848
(604) 775-1041 in Greater Vancouver.
Fax: (250) 356-0206 or contact your local Gov. Agent
Name
Approval Form
pdf file 3 pages
Statement
of Registration of General Partnership or Sole Proprietorship
pdf file 2 pages
Registering a Corporation
All corporations operating within the province
of BC must register with the provincial Registrar of
Companies. If the company wishes to expand its activities
outside of its provincial jurisdiction at a later date,
it must obtain an extra-provincial license from every
other province in which it wishes to open an office
or obtain a presence.
Incorporating a Company in British Columbia
Incorporating can be a very involved process
and it is recommended that you seek the advice and services
of a lawyer and/or an accountant. People looking to
incorporate are able to file forms on the Internet using
Corporate
Online. It is mandatory that filings that
are available online are submitted electronically.
Companies
are incorporated in British Columbia according to the
provisions of the Business
Corporations Act. By filing the necessary paperwork
online and paying the prescribed fees, one or more individuals
can form an incorporated company.
The
following acts provide for an incorporation and formation
structure for people going into business. They do not
enable entry into the marketplace or provide licensing.
Business
Corporations Act: This act stipulates the rights
of shareholders, directors and the rights of other parties.
Cooperative
Association Act: This act provides for the incorporation
of associations for the purpose of carrying on business
on a cooperative basis. Unlike the Company Act, each
member of a cooperative association has one vote, regardless
of the number of shares held by each member.
Incorporation
Process The first step in incorporation is
the approval of the name using the same Name Approval
Request Form as required for a proprietor or partnership.
Printed incorporation forms are not available from the
office of the Registrar of Companies. Registration is
available online at http://www.corporateonline.gov.bc.ca.
Before you begin the online registration process,
ensure you have the following information on hand:
- The name
reservation number for the proposed company, if applicable.
- The date
and time the incorporation is to take effect.
- The names
and addresses of the incorporator(s).
- The names
and addresses (delivery and mailing) of the director(s).
- The mailing
and delivery addresses for the proposed registered
and records offices.
- The authorized
share structure for the proposed company.
- Any translation
of the company name that the company intends to use
outside Canada.
Current
Fees:
- Name
Approval Request: $30 (minimum)
- Basic
Fee for Incorporation: $350
- Basic
Fee for Incorporation - Cooperative: $250
Contact
your local Government Agent or:
Registrar of Companies
2nd Floor-940 Blanshard Street,
Victoria, BC
Mailing
address:
PO Box 9431 Stn Prov Gov
Victoria, BC
V8W 9V3
Tel:
(250) 387-7848
(604) 775-1041 in Greater Vancouver.
Fax: (250) 356-0206 or contact your local
Government Agent
Remember: the registration of an incorporation must
be filed online at http//:www.corporateonline.gov.bc.ca
For more
information you can also visit the Business
Corporations Act Project website and view the actual
Business
Corporation Act
FEDERAL
INCORPORATION
You should consider federal incorporation if you want
to carry on business in more than one province or outside
the country. The heightened name protection provided
to federal corporations is also often given as a reason
for choosing incorporation under the Canada Business
Corporations Act (CBCA). This is seen as an important
element of the right to carry on business throughout
Canada. Once federally incorporated, the corporate name
has a protected status second only to trade-mark protection.
A
company registered as a Federal Incorporation must still
register as an "extra-provincial" corporation
if if it has a resident agent or representation , an
office , warehouse or place of business or has a BC
number in a provincial telephone directory within the
province.
Under
the Canada Business Corporations Act, any individual
or corporation may receive a certificate of incorporation
for any legal purpose with the exception of operating
such institutions as banks, insurance companies, and
trust and loan companies.
CONTACT
Federal Incorporation Information Kits are available
from:
Industry
Canada, Corporations Directorate
2000-300 West Georgia Street
Vancouver, British Columbia V6B 6E1
Tel: (604)666-9875
Fax: (604) 666-4274
Information Kits and an Online filing feature can also
be found at: http://strategis.ic.gc.ca/corporations
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