Starting your own business can be an exciting, although overwhelming, task. You’re giving yourself the opportunity to start your own business, but there are many things to consider, including how you plan on structuring your business.
In BC, there are three ways to structure your business, each with their own pros and cons:
- Sole Proprietorships;
- Partnerships; and
In this structure, only one person is needed – YOU!. That means there will be one decision maker, one labourer and there will be no back-up or succession. There are minimal set-up costs, but also very limited protection; legally, you will have unlimited personal liability as the owner of the business. This means that you will be personally liable for any debts of the business.
One of the pros is that all business profits will go to the owner (and any business losses can be used against your personal taxes to offset any gains).
A Partnership involves two or more self-employed individuals, doing business together with a view to profits. This means that everyone will share the responsibility of decision-making. It also means that everyone is jointly and severally liable for each other’s decisions. Having other partners also makes the idea of being a business-owner less overwhelming, as there are others to bounce ideas around. Similar to the Sole Proprietorship, Partnerships can have unlimited personal liability (depending on the structure) and while it’s not required, it’s a good idea to have a partnership agreement to be in place.
A Partnership means that all profits are shared, but it also means that all debts will be shared. Set up costs are still fairly minimal at this stage.
Unlike the first two business options, starting a Company means creating a separate entity from yourself. Various laws and statutes in BC and Canada treat Companies as if there are an independent legal entity. This means that the Company will continue on through changes of directors and shareholders and provides individuals protection from liability.
Legally, a Company has limited liability – generally, creditors cannot go after your personal assets, only corporate assets. There are very rare circumstances where a creditor may be allowed to “pierce the corporate veil” and go after your personal assets.
There are some industries where it is strongly recommended to incorporate a Company, simply because of the risks involved in operation. These industries include ones involved in food, baby products, construction, engineering, medical, dental and law.
All profits belong to the Company as well as all debts. A Company also benefits from a lower tax rate (in certain circumstances), greater flexibility with tax planning and the ability to raise capital through issuing shares. There is an additional, annual filing cost to maintain corporate status. Contact us for more details.
Whichever path you decide to take, we strongly recommend speaking to your accountant first to discuss all of the tax pros and cons and which structure will suit you best. If you don’t have one or aren’t happy with yours, contact us today and we would be happy to recommend one of the fantastic accountants we’ve worked with in the past.
Once you’ve decided that you’d like to go forward with your own business, contact us and we would be happy to help you get started on the next exciting phase in your life.