Let’s talk about business structures.
When you’re starting a business, one of the first things to consider is
where to put the mini fridge filled with rosé in your new office what the structure of that business will be.
With that in mind, I wanted to write a blog post for those of you who have either recently started a business or who are thinking of becoming an entrepreneur. In this post, I briefly discuss the most common types of business structures. Hopefully this will give you an idea of the different possibilities that exist when it comes to structuring your business.
Choosing a structure will depend on many factors, including the nature of your business, tax implications, the stage of your business (new or more developed), your financial situation and even your personality. No particular structure is better than another. It all just depends on what you want out of your business and how you would like it to function.
Whether you’re an artist or influencer, whether you call it your hustle, your side hustle, your daily grind or your girlboss empire — at the end of the day, your business is still a business. And all businesses have a technical side (and, let’s be honest, significantly more boring) — I’m talking taxes, spreadsheets, payroll, business structures, etc.
So, without getting too technical, here is a quick (and hopefully not too painful) overview of business structures, so we can all get back to that glass of rosé.
As usual, this post is for informational purposes only and is not meant to be interpreted as legal advice. If you have any questions about your current business, starting a new business, don’t hesitate to contact us or slide into our DMs.
1. Sole Proprietorship – the lone wolf
This is where a person carries on business alone. In a sole proprietorship, the business owner may have employees, but otherwise does not involve anyone else in the actual business.
The income and assets of the business belong to the business owner. In a sole proprietorship, there is generally no limited liability. In other words, the business owner personally bears all the responsibilities and obligations of the business.
2. Partnership – two heads are better than one
A partnership is where two people or more carry on business to make
dat paper a profit. There are three types of partnerships in Ontario: a general partnership (usually just called “a partnership”), a limited liability partnership (aka LLP), and a limited partnership.
Liability of the business owners will vary depending on the type of partnership. For example, in a general partnership, liability is unlimited. This means that the business owners are responsible for the obligations and debts of the business. The limited partnership is where at least one partner has unlimited liability and one partner’s liability is limited to the amount contributed to the business.
LLPs, on the other hand, are a little different — this form of business is usually reserved for professional services, such as accounting or law. In the LLP, the liability of a business owner is generally limited to his or her own negligence.
3. Corporation – the master of disguise
A corporation is a business organization that is separate from its owners. The corporation is its own legal entity and can carry on business by itself. It can have rights and incur liabilities.
A corporation is owned by people through shares (shareholders), but those people are completely separate from the corporation and don’t have any of the corporation’s rights, liabilities or assets.
A shareholder’s liability is limited to the value of the contribution provided by the shareholder in exchange for shares.
There are many other types of business organizations, including not-for-profits and charities, co-ownership, franchises and joint ventures. There are numerous laws that come into play, depending on which business structure you choose. There are also tax implications, liability implications and various costs associated with each form of business structure. Choosing the right business structure comes down to preference, by carefully weighing the pros and cons of each type of structure. If you have any questions about your situation, it is recommended to consult with a lawyer.
Contact Us to inquire about advantages, disadvantages and implications of different business structures and related matters. Learn more about Business & Corporate Law services, or how we can help Businesses and Entrepreneurs, Influencers and Bloggers, as well as Artists and Creatives.
Author: Catherine Nadeau Mijal