Non-Corporate Business Entities
A Proprietorship is a single owner with no separate legal entity. The owner is liable for the debts and liabilities of the business. A sole proprietorship ceases to exist on the death or bankruptcy of the owner, or when the business is terminated. A "trading name" different from the owners name can be adopted by means of registration under the Business Names Act, however, unlike a corporate name, others can register a similar or even identical name;
Where multiple parties are to be the owners of a non-corporate business, the legal options available are various forms of partnerships – Joint Venture, Co-ownership Arrangement, or a commercial trust.
Forms of partnerships that exist for-profit businesses are as follows:
- A General Partnership;
A partnership is not a separate legal entity, but rather a relationship between two or more persons carrying on business together in the expectation of making a profit. Partners are jointly liable for all debts and other liabilities of the firm, including obligations incurred by acts of a partner in the course of the firm's business. Any partner may participate in management and control. A business name registration is required where the partners wish to operate under a "trade name". A partnership can be operated without any public formality, but a written partnership agreement and understanding of the Partnership Acts and common law is highly suggested prior to commencing. Partnerships typically dissolve or cease to exist upon the death, bankruptcy or withdrawal of a partner, but can be varied by agreement.
- A Limited Partnership;
A limited Partnership is governed by provincial limited partnership statutes. A Limited Partnership requires a public filing of a declaration as prescribed by statute. A Limited Partnership Agreement is mandatory. Passive partners can enjoy limited liability. The liability for debts and obligations is determined by involvement.
- A Limited Liability Partnership (mostly utilized by Professional Service Firms);
This form of Partnership requires a written partnership agreement. It is governed by the Partnership Act. It is designed for professional service firms. The LLP is required to register a "trade name" under the business name registration and include the words "limited liability partnership". There are specific tax characteristics that exist with respect to LLPs.
- Commercial or Business Trust;
This form of entity exists where the legal title (trustee) to property is held by one person and the equitable title is held by another (beneficiary). The trustee manages the trust property and the beneficiaries receive the rights to profits which is dependent on the trust agreement. A Trustee may be an individual or a corporation, or both and residence of the trustees may be relevant to the determination of the "residence" of the trust for tax purposes. A trust is not a separate legal entity and the trustee is the legal person with the power to deal with the trust property according to the terms conferred by the trust instrument. For income tax purposes, a trust is deemed to be an individual. The Trustee is personally liable for actions and this can be limited by agreement. The Trustees owe a fiduciary duty to the beneficiaries.
A corporation in law is regarded as being a legal person, separate and distinct from the person or persons who comprise its shareholders and employees. A great advantage of Incorporating is the limited liability which it confers on shareholders with respect to the debts and other liabilities of the body corporate. This is due to the fact that a corporation has an existence separate and distinct from its shareholders. The body corporate, not the shareholders, owns the undertaking assets and also the liabilities. Shareholders of the corporation are generally only liable to the extent that they receive dividends or other distributions when the corporation is insolvent, or which render the corporation insolvent. A corporation can either be:
These are often dedicated to purposes other than the pursuit of a profit. This form of entity does not issue any ownership shares. The corporation is not permitted to distribute profits to members, directors or officers. The profits are used for the not-for-profit purposes that the entity was established to pursue. The Not-For-Profit can be used for both charitable and non-charitable organizations;
This form of corporation is created by or under the authority of either Parliament or provincial legislature depending on whether an individual chooses to incorporate federally or provincially pursuant to the applicable Corporations Act. A corporation is a person, separate and distinct from the person or persons who comprise its shareholders and employees. The body corporate owns the assets and the liabilities while the shareholders are only liable to the extent that they receive dividends or other distributions when the corporation is insolvent, or which render the corporation insolvent. Personal liability can be imposed on a corporation's shareholders for the acts of the corporation. Various classes of shares, with preferences as to dividends, redemption or convertibility, and the flotation of bonds or debentures which may be utilized to garner funds for expansion or development can be utilized to raise capital. The corporation is taxed on worldwide income at Corporate tax rates determined by the source of income. Owners can be paid a salary, bonus, or dividends. The death or withdrawal of a shareholder does not affect the existence of the body corporate. A corporation can be dissolved either voluntarily by resolution of the shareholders or involuntarily;