It’s a question we get asked a lot, and we hate to go all lawyerly on you, but – it depends!
There are three ways to structure your business in British Columbia and there are 3 “buckets” of reasons, Operations, Legal, and Accounting, you should think about when deciding what structure fits best with your business.
Sole Proprietorship (1 Self-Employed Person) | Partnership (2+ Self-Employed People) | Company (Separate Entity from You) | |
| Operations | 1 decision maker No back-up succession to you Very limited name protection | Share all the decision making Have each other as back-up Less lonely Decisions can bind each other Limited name protection | Survives the death of shareholders (owners) Name is protected |
| Legal | Unlimited personal liability | Unlimited personal liability Need a Partnership Agreement | Limited liability Most regulated Needs a Shareholder Agreement Start-up and annual filing costs |
| Accounting | All the profits go to the owner 1 person pays all the debts No flexibility with tax planning Minimal start-up costs | Share all the debts Minimal start-up costs | Debts belong to the company Lower tax rate Flexibility with tax planning Additional annual filing costs Easier to raise capital through sale of shares |
There are however, some industries where we definitely recommend incorporating right away, because of the potential liability involved. These industries including anything to do with food, babies, construction or any industry where machinery is involved, health and wellness, medical or dental. Considering your potential liability in your business is important, because if you aren’t incorporated, your personal assets (like your house and car) can be seized to pay any debts of the business.
We also always recommend speaking with your accountant at the same time your thinking about how to structure your business. They are in a great position to look at your financial situation on the whole and give you advice on how to maximize your income. Having a legal and financial team on your side from the get-go will mean a bit more time and money up front, but can save you a heck of a lot of time, money and headaches down the road. As your business grows, you’ll feel a lot better knowing that you’ve got the right legal and financial framework in place to support your growth and vision.
If you’re thinking of incorporating, but still not sure if it’s the right next step, one of our business lawyers would be happy to talk you through the pros and cons, determine if its the right next step, and answer any other questions you might have.
Related Blog: Should I incorporate myself or use a lawyer?
Jaime Bell
