There are three common types of business structures in B.C.: Sole proprietorships, Partnerships, and Corporations. Selecting the appropriate business structure is a critical decision for any entrepreneur. The structure you choose can affect liability, taxation, control, and even the long-term sustainability of your business. This guide will help you navigate the essential considerations to make an informed choice that aligns with your business objectives.
Liability Protection
When selecting a business structure, consider the level of personal liability you're comfortable with. Corporations can offer certain limited liability protection, meaning your personal assets will generally remain separate from business debts though, if you require a loan or commercial lease, it is highly likely that you’ll be required to personally guarantee your corporation’s obligations. In contrast, sole proprietorships and general partnerships expose personal assets to business liabilities.
Tax Implications
Tax is “the tail that wags the corporate dog”. Evaluate the tax implications of each business structure as each has its own tax requirements and pros and cons. Our firm does not provide tax advise but we encourage our entrepreneurial clients to consult with a tax advisor to understand the implications of different business structures on their specific situation.
Ownership and Control
Determine your desired ownership and control structure. Sole proprietorships provide sole ownership and control, partnerships require multiple owners, and corporations can be solely owned and controlled but also allow for multiple owners.
Business Continuity and Succession
Consider the longevity and succession plans for your business. Corporations enable ownership transfer through share sales, while sole proprietorships and partnerships, themselves, cannot be sold to others or transferred to heirs upon retirement or death (their assets can be sold or transferred but not business registrations and/or licenses). In the case of sole proprietorships and partnerships, the assets must be acquired and a new business entity with fresh licenses and permits must be established to continue operations.
Compliance and Administrative Requirements
Different business structures entail varying compliance and administrative obligations. Corporations typically have more reporting requirements than sole proprietorships or partnerships. Consider the administrative burden and costs associated with each structure.
Funding and Capital Requirements
Assess your funding needs and choose the structure that best aligns with your capital requirements. Sole proprietorships and partnerships rely on personal assets or loans to fund their business ventures. While corporations can also use personal assets or loans, they can also raise capital through the sale of shares.
Professional Advice
Seek advice from a lawyer and an accountant. Our firm and an accountant can help you assess your business’s specific needs.
THE TAKEAWAY
Choosing the right business structure involves weighing a variety of different factors. By carefully considering, among other things, liability, taxation, ownership, and growth potential, and by consulting with professionals, you can make an informed decision that supports your business's success and longevity.
Contact Us
If you have any questions, please contact us at (604) 736 9791 or email Alex Robertson ar@dwslaw.ca.
Disclaimer: This article is not intended to serve as, or should be construed as legal advice, and is only to provide general information. Should you require legal advice for your particular situation, please get in touch with us. The information for this article was compiled on February 12, 2025.
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