Professional Corporations 101

A professional corporation is a corporation engaged in providing professional services, where a profession governed by its professional body allows its members to practice through a corporation as opposed to a sole proprietorship or partnership.  Examples include Doctors, Dentists, Chiropractors, Lawyers and Accountants.  To have a Professional Corporation you must belong to a professional governing body.

The main advantages of professional corporations are:

Ø  Having a Professional Corp. allows you to belong to Professional Organizations.

Ø  Having a Professional Corp. allows you to be recognized as a Professional.

Ø  Many people like to deal with Professionals that are governed by another body for accountability.

The main disadvantages of professional corporations are:

Ø  There are more tax filing and other rules for a Professional Corporation than a regular Corporation.

Ø  A Professional Corp’s life is ended if the person/people holding the designation passes away or loses their license.

Ø  You are under the rules of the Prof. Organization that may not allow you to have shareholders or partners that don’t belong to the organization. (hold credentials).  Typically the exemption to this is immediate family members, such as a spouse or children.

Ø  The articles of incorporation, in addition to all other requirements, must limit the activities of the corporation to the profession.

If you belong to a professional governing body they may require you to have a professional corporation.  Please contact us if you require more information on business structuring or professional corporations.

The last part of the series on structures will be about Charities. Check back next week and we’ll discuss some general information about these organizations!

Partnerships 101

In this blog we are talking about unincorporated partnerships.  Check our other blogs for other forms of corporate partnerships, limited partnerships and more.  A partnership is established when two or more people agree to pool their financial, managerial, technical and other resources in order to operate a business for profit.  Like a sole proprietorship, a partnership is not taxed as a business that is separate from its owners.  The income from the partnership is included as part of the partners’ personal incomes and taxed accordingly.

The main advantages of partnerships are:

Ø  Because two or more people will be in business together, they can combine their finances in order to invest more than either could have done individually.

Ø  A partnership will most likely be able to borrow more than a sole proprietorship because creditors will have the credit & collateral of two or more people instead of only one to secure their lending.

Ø  Partners can pool talents and resources to accomplish more.

The main disadvantages of partnerships are:

Ø  Like a sole proprietorship, partners in a partnership are also exposed to unlimited liability incurred by the business, in relation to their % of ownership.

Ø  The partnership ends every time a partner leaves, unless provided for in a partnership agreement.

Ø  Start-up costs can be as high as, or even higher than, the cost of incorporating, due to the cost of Partnership Agreements.

If you are considering a partnership you may not want to use this typical form of partnership, but instead consider using a corporation or limited partnership.  Please contact us if you require more information on business structuring or partnerships.

My next blog will be about Professional Corporations so please visit my blog again!

Limited Partnership 101

Limited Partnerships are a special form of partnership, often used where investors want the tax treatment that comes from a partnership relationship, without incurring personal liability for all of the partnership debts.  Limited Partnerships (LP’s) consist of a General Partner, responsible for managing the business of the LP, and the Limited Partners, the silent investing partners that have no say in the business activities. 

The main advantages of limited partnerships are:

Ø  Limited partners have limited liability.

Ø  Both Income and Losses are flowed through to limited partners.

Ø  It is easy to attract investors to an LP.

Ø  Allows for experienced general partners to use their expertise in running the business.

Ø  Limited partners can leave without LP dissolution.

The main disadvantages of limited partnerships are:

Ø  There are more filings, formalities, requirements with limited partnerships.

Ø  It can be costly to form a Limited Partnership.

Ø  General partners assume personal liability.

Ø  Much due diligence is required before investing as you are trusting your money in the hands of the General Partner.

Both General Partners and Limited Partners can be corporations.  There are many uses for Limited partnerships, including minimizing and deferring tax.  If you have any questions on Limited Partnerships or other structuring  questions don’t hesitate to contact us!

We’ll take a look at Partnerships next week! 

JOINT VENTRURES 101

A joint venture is not a structure, but is really a contract.  A joint venture exists when two or more people agree to contribute goods, services, labor or capital to one business enterprise. Canada has no specific laws governing joint ventures, outside of contract law.  Currently, joint ventures are governed by the contract between the parties involved in the jurisdiction they are agreed to be governed by.

The main advantages of using joint ventures are:

Ø  You can make up the rules as to what the joint venture contract will look like.

Ø  Joint Ventures are very flexible.

Ø  Joint Ventures bring people together to share resources and/or talents.

Ø  Joint Ventures can simply end when the deal is done (unlike a partnership or corporation).

The main disadvantages of using joint ventures are:

Ø  Contracts can be complicated and costly.

Ø  The objectives of the Joint Venture may not be clear, or each JV partner may have different objectives that cause conflict.

Ø  Legal Contracts come down to interpretation, and in Joint Ventures there are no major laws governing them.

Joint ventures can be used in conjunction with corporations, trusts and other types of structuring.  If you have structuring questions, don’t hesitate to contact us!

On my next blog, we’ll discuss Limited Partnerships. Please check back on Thursday! 

Cooperatives 101

A cooperative is generally described as a business that is organized, owned and democratically controlled by the people who use its products and services, and whose earnings are distributed on the basis of use of the cooperative rather than level of investment.  A distinct feature of a cooperative organization is that the role of owners and patrons / users are closely connected.

The main advantages of Cooperatives are:

Ø  Cooperatives have many of the same advantages of investor-owned corporations such as limited liability of owners and perpetual existence of the cooperative.

Ø  Cooperatives are allowed to deduct patronage refunds to members out of before-tax income.

Ø  Control of the business can be kept in the hands of those who use the business.

Ø  Profit distribution may be allocated in shares or cash.

The main disadvantages of Cooperatives are:

Ø  It may be difficult to raise funds for a Cooperative.

Ø  Cooperatives may not provide incentives for members to contribute additional capital.

Ø  Extensive Record Keeping and more complex tax and registrations filing is required.

Ø  Longer decision making process with more possibility of conflict between members.

Cooperatives are used much less than corporations and trusts, however they do have their place.  Cooperatives are very typically large businesses.  If you have questions on structuring your business or investments don’t hesitate to contact us.

On my next blog, we’ll take a look at Holding Companies.  

Sole Proprietorships 101

For the next few blogs, I will be discussing briefly each of the business structures available to you should you plan to start up your own business.  Let’s first look at Sole Proprietors.

A sole proprietorship is the simplest and most common form of business structure, and it is the oldest form of legal ownership in Canada.  It is owned by one person who retains all of the legal rights and bears all of the responsibilities associated with the business.

The business of a sole proprietorship is not considered as a separate entity from the owner.

The main advantages of sole proprietorships are:

Ø  It is the simplest and least expensive type of organization to create or dissolve. 

Ø  The owner retains absolute control over business decisions.

Ø  A sole proprietor can deduct business losses from other forms of personal income.

Ø  It is simple and inexpensive to maintain.

The main disadvantages of sole proprietorships are:

Ø  The owner faces unlimited liability.

Ø  With regard to liability and taxation, the owner and the business are one in the same.

Ø  You can’t raise funds through sale of Equity.

Ø  Upon death of the owner, the business is legally terminated.

Sole Proprietorships can be formed at any time once you have an idea for business and decide to move forward.  Please contact us if you require more information on business structuring or sole proprietorships.

We’ll look at how Cooperatives work on my next blog! Please check back!