Firstly, to start a company it is important to choose a business structure that suits your business needs. Which structure is the most suitable for you?
Sole-proprietorship is a type of business owned and often operated by the business owner. It is the easiest and the most inexpensive type of business to register and manage amongst the other business structures. The self-employed owns the 100% of the “sole proprietorship” and all the business decisions are their own final say.
A partnership is a type of business that is owned jointly by two or more business owners and is also a relatively simple to set up with a low management cost business type that is. There are two types of partnerships: general and limited.
• General Partnership: All partners share the profits and losses of the business and jointly assume all the responsibilities.
• Limited Partnership: Limited partners are not involved in the operation, not responsible for the debt, only to enjoy the share of the net profit. As a general rule of thumb, very few business owners operate as limited partners.
- Business assets ownership: All business assets are owned by the business owner or co-owned by the partners.
- Unlimited liability: According to the law, the business owner and the company are regarded as the same legal person, which means that the business owner or partners will be liable for any business liabilities and obligations that may arise from his business. If these liabilities are greater than the business assets, the owner’s or partner’s personal assets may need to be ceased should the business fail and in some cases even declare personal bankruptcy, if the debt of the business is higher than all personal assets combined.
- Registration of Business Names and Tax Accounts:
There are no other legal requirements for setting up a wholly-owned or general partnership except for the name of the business. If the business owner or partners intend to hire employees or collect GST / HST or provincial sales tax, the business owner also needs to register for the relevant corporate tax account.
Business owners and partners are considered self-employed, not employees of the business.
- Filing business and personal income Tax return bundles: Owners and partners should maintain separate books and records for their business; however, they only need to file an individual income tax return each year. If a business reports a loss for the tax year, business owners and partners can use it to reduce income from other sources of personal income (such as through investment or other work).
Need to re-establish the partnership when one business ends
When one of the business partners/owners dies, the business as such ends. If the remaining partners wish to continue the business operations, they would be required to re-register the company.
Self-employed has full control over the business, management and decision making
Partners share responsibility for the day to day management and operations of the business and make common decisions and need to consult other partner before any decisions can be made (except for the limited partners, who’s liabilities are clearly defined by other contracts.)
Available Startup Funding:
- Self-employed would usually finance their business by their personal savings, bank loans or credit lines. Start-up capital can be limited.
- Partnerships are funded similarly, except pooling more resources amongst the business partners, could significantly increase the amount of start-up funding available.