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Starting a Small Business

 

 

 

Last Edited
March 31, 2004

 

 

ONLINE SMALL BUSINESS WORKSHOP
> Proprietorship, Partnership, or Corporation?

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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