Nicolas Guevara-Mann | Queen’s Business Law Clinic | August 2021

Editor: Mikela Page

When starting your business, one of the biggest and most important decisions you will face is choosing an appropriate business vehicle. This decision may have a long-lasting effect on your business. It will inform how profits are shared, how much is paid in taxes, the amount of paperwork that needs to be filed, the ability to raise capital, and exposure to personal liability.

Many start-up founders believe incorporation is the best business vehicle because that is the way that others have done it. However, the choice of an appropriate business vehicle is business and client specific. Your individual circumstances and business idea, short and long-term goals, and potential for growth and liability should be considered. Three major issues that should always be kept in mind are liability, taxation, and record-keeping.

Below are some of the types of business vehicles and a very brief summary of their advantages and disadvantages.

Sole Proprietorship: Easy and inexpensive to set up with direct control of decision making, but exposes the business owner to unlimited liability.

Partnership: Easy to set up with some tax advantages, but all partners are jointly liable for any debts and liabilities incurred by the firm or by another partner.

Incorporation: Great for raising equity capital by issuing shares and shareholders are exposed to limited liability, but it is expensive to incorporate and annual filing requirements can be burdensome.

Registered Charities and Unincorporated Non-Profit Organizations: Generally exempted from paying taxes, but business purpose or services cannot include the object of generating a profit.

Social Enterprises: Easy to raise capital and are flexible with business structure, but can only be formed in British Columbia or Nova Scotia.

Joint Ventures: Light regulatory burden with minimal working capital required for start-up, but it can be difficult to raise more capital and the business will end once the project comes to an end.

As you can see, different business vehicles will be more appropriate or less appropriate depending on individual circumstances. Take the time to consult with legal, accounting, and tax professionals before making a decision on the appropriate business structure. Choosing the structure that best achieves your business goals will save you time, energy, and money which you can instead spend on growing your business.

Photo by Scott Graham on Unsplash

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