Choosing the right business structure for you can be a life changer
Business start-ups and purchases are life changers, and are some of the most momentous decisions we make, so naturally, it’s important to get it right the first time. My Toronto law practice, Howard Nightingale Professional Corporation, has accumulated a wealth of experience in the commercial and corporate law sector, including purchase and sales as well as negotiations. Let me help you to do your due diligence, beginning here with a brief review of the three business structures: sole proprietorship, corporation/commercial and partnership.
Sole Proprietorship Business
Maybe your venture is going to be a bricks and mortar store of some sort, or you’re turning your photography hobby into a business, or your garden is so spectacular that neighbours suggest you should open a gardening service. You might eventually employ people, but likely your business will begin as a one-person operation with you, to use the old cliché, as the “chief cook and bottle washer.”
For most people entering the field of entrepreneurship in this manner, a sole proprietorship is a comfortable fit and the easiest to undertake. Registration is simple and inexpensive, requiring little expertise. As well, you pay only your personal income tax and the profits are yours. However, there is no corporate firewall to protect you, your home and your personal bank accounts from a disastrous turn of events should someone slip on ice entering your store, fall over the rock you were placing in a garden bed, or should you somehow lose all five hundred pictures of that $30,000.00 wedding. Thus, the major drawback of this model is that, as the sole proprietor, you are personally libel and vulnerable to being sued.
Corporation/Commercial Business or Incorporation
This is the chief advantage of incorporating: your company is now a separate entity from you. The client might sue Sunny Gardens Inc. but you, your home and your personal bank accounts are safe. On the balance side of this ledger, incorporation is more expensive and costly. Commercial agreements require additional legal and accounting support and you will pay two sets of taxes, your own, and Sunny Gardens Inc. will also pay for the privilege of making a profit. And of course, because your business will be subject to corporate and commercial law, you should plan on retaining legal expertise to steer your corporate venture in safe waters.
The remaining structure is a partnership. Here there is someone to share the cost, the work, and of course, the profits. If you can contribute expertise in landscape construction for Sunny Gardens, and your partner excels in design and maintenance, there’s a natural fit, and perhaps you even add a third partner with an extensive background in business management. Like the sole proprietorship, the partners pay only their personal income tax with no corporate complexities, but also like the sole proprietorship, they can be sued, only now there are additional partners to shoulder the burden with you.
Partnerships can be either General or Limited, with the general variety, as described above, essentially being an equal relationship. The limited version identifies one person as the General or controlling partner, the one who will also bear the lion’s share of responsibility for debt and contractual obligations, while the remaining partners’ exposure is limited to their investment, or their holding in the partnership (hence the ‘limited’ designation).
Since each business style clearly has its own unique set of advantages and disadvantages, there is no right or wrong, only determining what will work best for you, given your particular circumstances at the time you begin your venture. The decision is yours, but Howard Nightingale has the expertise to provide you with the in-depth knowledge and expertise to make the best choice, to help you avoid pitfalls and finally to establish your business on a rock-solid footing.