Business Structure & Registration

A major decision you will have to make as you start your new business is the form of ownership it will take. From a legal point of view, there are three common types of businesses: sole proprietorship, partnership and corporation. Each form has its advantages and disadvantages that depend upon the type of business you are in, the number of people involved and the size of the operation. Each has different and important implications for liability, taxation and succession. A lawyer or accountant can advise you on which structure is suited to your business and undertake the necessary formalities.

 

Sole Proprietorship

If you own and carry on a business under your own name or under a business name, and you have not incorporated your company, you are a sole proprietorship. This is the simplest way to set up a business. A sole proprietor is fully responsible for all debts and obligations related to the business. A creditor with a claim against a sole proprietor would normally have a right against all of the assets, whether business or personal. This is known as unlimited liability. In a proprietorship, one person performs all the functions required for the successful operation of the business. The proprietor secures the capital, establishes and operates the business, assumes all risks, accepts all profits and losses, and pays all taxes. The proprietor is said to be self-employed.

 

 Advantages Disadvantages 
  • Low start-up costs
  • Greatest freedom from regulation
  • Owner in direct control of decision making
  • Minimal working capital required
  • Tax advantages to owner
  • All profits to owner
  • Unlimited liability
  • Lack of continuity in business organization in absence of owner
  • Difficulty in raising capital
 

Partnership

A partnership is an agreement in which two or more persons combine their resources in a business with a view to making a profit. In order to establish the terms of the partnership and to protect partners in the event of a disagreement or dissolution of a partnership, a partnership agreement should be drawn up. According to the terms of the agreement, partners share in the profits. There are two types of partnerships, general and limited.

In a general partnership, two or more owners share the management of a business, and each is personally liable for all the debts and obligations of the business. This means that each partner is responsible for, and must assume the consequences of, the actions of the other partner(s).

In a limited partnership, partners are liable only to the extent of the capital they have contributed. They are not involved in managing the business and therefore cannot be held liable for more than the amount of capital they have contributed. This is known as limited liability. The general partner is fully liable for the debts of the limited partnership to the extent that the debts exceed the limited partner's investment capital.

 

 Advantages Disadvantages 
  • Ease of formation
  • Low start-up costs
  • Additional sources of investment capital
  • Possible tax advantages
  • Limited regulation
  • Broader management base
  • Unlimited liability
  • Lack of continuity
  • Difficulty in raising additional capital
  • Hard to find suitable partners
  • Possible development of conflict between partners
  • Partners can legally bind each other without prior approval
 

 

Corporation

A corporation is a separate legal entity. The owners, called shareholders, are not responsible for the debts or obligations of the corporation. This is referred to as limited liability. Generally, a creditor with a claim against the assets of the company would normally have no rights against its shareholders, unless a guarantee covering the company's debts had been provided. This type of business can be incorporated at either the federal or the provincial level. Therefore, it is recommended that professional advice be sought.


 

 Advantages Disadvantages 
  •  Limited liability
  • Specialized management
  • Ownership is transferable
  • Possible tax advantage
  • Continuous existence
  • Separate legal entity
  • Easier to raise capital
  • Closely regulated
  • Expensive form of business to organize
  • Charter restrictions
  • Extensive record-keeping necessary
  • Double taxation of profits as dividends

 

Registering a Proprietorship or Partnership

Proprietorships and partnerships are regulated by the provincial government. You do not have to register with the provincial licensing authority if your sole proprietorship is operated under your own legal name or your general partnership is carrying on business under the names of the partners. However, if you choose a distinctive name, provincial legislation requires you to register your company name under the Business Name Act before you start using it.

For more information please visit the BC Business Registry, or contact the British Columbia  Ministry of Finance

 

Registering a Corporation

You have the option to incorporate at the provincial or federal level. If a corporation intends to operate only in British Columbia, then provincial incorporation may be preferable. Conversely, federal incorporation may be preferable when a business intends to operate in more than one province or outside the country.

Provincial Incorporation

Ministry of Finance
Corporate and Personal Property Registries Branch
PO Box 9431 Stn Prov Govt
Victoria, British Columbia V8W 9V3
Tel: (250) 387-7848 or (604) 775-1041
Fax: (250) 356-0206

Federal Incorporation

Federal Incorporation Information Kits are available from:

Industry Canada, Corporations Directorate
Suite 2000 - 300 West Georgia Street
Vancouver, British Columbia V6B 6E1
Tel: (604) 666-9875
Toll Free: 1-866-333-5556
Fax: (604) 666-4274