What is the Best Legal Structure for Your Company?

WeBC March 15, 2017

When you are starting a business it’s important to understand the different ways that businesses can be structured and the advantages and disadvantages of each structure to help you determine which one best meets your individual circumstances.

The most common structures are sole proprietorships, partnerships and corporations.

A sole proprietorship can be used when you operate the business alone. Operating as a sole proprietorship is usually considered the simpler, less expensive route, with all profits and tax advantages going to the owner. However, the disadvantage is that you become personally responsible for all the debts and obligations of the business. It may also be difficult to raise capital with this structure. In addition, the business name can be registered, but registration does not provide protection from other businesses using the same or similar names.

In a partnership, you and one or more owners share in ownership and responsibility, which means that each partner is responsible for the actions of the other partner. Partnerships are easy to form and may be a good vehicle to pool resources to make a business viable. In addition, possible tax advantages may exist. Disadvantages to this structure include lack of name protection, difficulty in raising capital, difficulty in finding a suitable partner, divided authority and the possibility of partner conflict.

A corporation is considered a separate legal entity, with the liability of the shareholders limited to the subscribed share capital of the corporation. There are possible tax advantages to this structure and ownership can be transferrable as its continuation is not dependent on its individual directors and shareholders. The name of the corporation is also registered in the BC Corporate Registry, which provides protection to the name within British Columbia. Incorporating can be a more expensive process, with more regulation and requirement under the Business Corporation Act, yet this may be the preferred structure for your growing business, if recommended by your tax advisor and lawyer.

Before your business is up and running, take the time to consult with your advisors to ensure you have the right corporate structure. Often, spending time and money on a meeting with your lawyer and accountant will save you money later on. Your advisors can work together with you to structure your business entity in a way that works well for you in the most tax efficient manner.

About WeBC

WeBC is a non-profit organization devoted to helping BC women launch, lead and scale their own businesses. Our full range of services includes business loans up to $150K, business advice, skills training, mentoring, resources and a supportive community to help women entrepreneurs realize their business potential. Connect with us today for personalized support for your business!

Leave a Reply

Your email address will not be published. Required fields are marked *