Tag: business forms of organization

Pros and cons of sole proprietorship in Canada

sole proprietorship in canada

A sole proprietorship is the oldest, simplest and most common form of organization for a company.

It’s a business owned by one person — the sole proprietor — and is unincorporated. Easy as that!

Quick facts about sole proprietorship in Canada

  • As the business owner, you own all assets, earnings, and profits. However, you also hold all the responsibilities (including legal and debt), obligations and liabilities.
  • If you establish a business in your own name, without adding any other words, you don’t have to register the business. You can either bill customers in your name, or register a business name and bill customers under that name, which must have a separate bank account. The law doesn’t distinguish between the business and its owner, and personal income tax must be paid on all revenue generated by your business.
  • If your revenues are more than $30,000, or if you have legal ownership of more than one business, you must register for GST/HST (one registration will cover all businesses).

Let’s take a look at some of the pros and cons of this type of ownership.

Pros of sole proprietorship

  • Least expensive form of ownership, low start-up costs.
  • Most freedom from regulation.
  • Simple to start and dissolve.
  • Complete control over the company and decisions.
  • Least working capital required.
  • Complete control over the income generated by the business.
  • Complete access to profits.
  • Easier to offset losses against other income.
  • Flexibility.
  • Easiest to exit.

Cons of sole proprietorship

  • Business owner is legally responsible for all debts.
  • Unlimited liability (not separate by law; can be personally liable for all debts even if it means paying debts with your personal assets).
  • Business can’t continue in absence of owner.
  • Harder to raise funds from personal savings or loans.
  • Higher personal tax rate.
  • Often harder to find high quality employees.
  • Limited resources and opportunities for growth.
  • Some employee benefits are not deductible from business income.

Want to learn more about sole proprietorship? Check out GoForth’s online streaming small business training!

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Perks and snags of small business cooperatives

Cooperative small businesses are organized and controlled by members – an association of people who strive to meet common needs. There are approximately 8,800 cooperatives in Canada. If you’ve shopped at a Co-op grocery store, well, it shouldn’t surprise you to learn that it’s a cooperative organization.

Members pool resources and are given one vote per member. Membership is open and voluntary and members get regular patronage dividend payments. There are two operations of the cooperative: general meetings of the members or delegates; and the board of directors elected at a general meeting. Users or stakeholders of the cooperative usually include consumers, producers, workers or multi-stakeholders.

Here are some perks and snags of a cooperative business:

Perks

  • Limited liability.
  • Profit distribution in proportion to use of service.
  • One member, one vote (democratic control).
  • Owned and controlled by members.
  • Ability to respond to community needs.
  • Community development in remote areas can be stimulated as a spin-off from a cooperative activity.
  • The survival rate of co-ops is higher than private sector companies.
  • Life of the company doesn’t end with the death of a shareholder.

Snags

  • It takes longer to make decisions.
  • Record keeping requirements are extensive.
  • There is less incentive to invest additional funds – members having the larger investment have no advantages over smaller contributors.
  • Conflicts may develop between members.
  • Members must participate for success.

Want more perks and snags? Check out our earlier blog posts on:

 

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Perks and snags of incorporation

Perks and snags of small business incorporationIn previous blog posts, we’ve discussed the perks and snags of sole proprietorships and partnerships. However, a corporation is very different from these two forms because the company is considered by law to be a unique entity, separate from the owners. The corporation can be taxed, sued, own property and can enter into contractual agreements at either the federal or provincial level.

Terms that identify a corporation include “Limited”, “Ltd.”, “Incorporated”, “Inc.”, “Corporation”, or “Corp.”

Owners of a corporation are its shareholders, who can’t be personally responsible for the corporation’s debts or obligations, and can’t claim any loss the corporation might experience. A board of directors is elected by shareholders to oversee major decisions. The corporation doesn’t dissolve when ownership changes.

Here are a few perks and snags that you may experience by incorporating your business.

Perks of incorporation

  • Possible tax advantage.
  • Shareholders can only be held accountable for their investment in stock of the company.
  • Transferrable ownership, no limited lifetime of the company.
  • Sale of stock allows for additional funds; it can be easier to raise capital.
  • Specialized management – management and ownership are separate.
  • Benefits may be deducted.
  • Separate legal entity.

Snags of incorporation

  • Most time-consuming and expensive form of organization.
  • Federal and state agencies monitor corporations.
  • Charter restrictions.
  • Legal formalities.
  • More paperwork, record keeping and filing requirements; closely regulated.
  • Often higher overall taxes.
  • Dividends may be taxed twice.
  • Possible conflicts between shareholders and executives.

 

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Perks and snags of small business partnerships

In a partnership, two or more people combine resources to start a business. In a partnership, the law doesn’t distinguish between the business and its owners. Partnerships can be a little complicated, because there are three different types possible – general partnerships, limited partnerships, and joint ventures.

Let’s take a look at some of the perks and snags of choosing a partnership for your company’s form of organization.

Perks of small business partnerships

  • Relatively easy to form.
  • Relatively low start-up costs.
  • Simple to start and organize.
  • Partnership agreement has most legal issues covered.
  • Having more than one owner may allow more access to funds.
  • There may be possible tax advantages.
  • It may be easy to attract employees if they’re given the incentive to become a partner.
  • Limited regulation.
  • Ability to benefit from complementary skills of partners and a broader management base.

Snags of small business partnerships

  • Each partner may be responsible for the actions of another partner.
  • Profits must be shared with other partners.
  • Unlimited liability for General Partnerships (not separate by law, can be personally liable for all debts even if it means paying debts with personal assets).
  • Control and authority over important decisions is shared.
  • Difficulty in changing ownership.
  • Disagreements among partners may occur; may take a longer time to come to a decision.
  • Difficult to find suitable partners.
  • Some employee benefits are not deductible from business income on tax returns.
  • As a partnership, the company may have a limited life if a partner withdraws or dies.
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