For any business, the legal structure is very important. The selection of a suitable structure can help you plan for the prospective growth of your business. It can be said directly that tax considerations need not necessarily be the only reason for deciding to merge your business.
There are three main kinds of business structures available that is Proprietorship, Partnership, and the Corporation.
Proprietorship – The sole proprietorship is considered the most easy and simplest form of business structure. Here, there’s no separation of the business and the owner and the business income tax is in the hands of the proprietor and also included on the personal tax return of the owner. Form-A-Corp adds that the sole ownership is a simple form of business, as it can be speedily established. However, in some places, you need to register the name of your business and get business license.
What Form-A-Corp says is that, ‘in case the owner passes away, then the assets are passed on to the family. However, any debts may not be transferred’. It’s necessary to note that the owner of the business may be responsible for actions and debts incurred in the business. If the business becomes insolvent or if the business is sued, the personal wealth of the owner is at risk.
Partnership – According to Form-A-Corp, a partnership is quite similar to the sole ownership structure. Here, the only dissimilarity is, there can be more than one owner and the percentage of total partnership income earned may be proportionally included on each of the partner’s individual income tax returns. In case losses are incurred in the partnership, then they are alloted proportionally to the partners.
Form-A-Corp also suggests that, when you enter in a partnership, then it’s advisable to draw up a partnership agreement that may state, what happens in case the partnership is dissolved and how the disputes can be solved. Limited partnerships allow the partnership to bring in new limited partners, but the limited partners cannot be involved in the management of partnership. In addition, the decision making in a partnership is made jointly.
Incorporation - The corporation may be established with the help of drafting the articles of incorporation and by registering the company with the provincial or federal government. This method can prove to be expensive and also imposes administrative needs on the owners. The corporation may issue shares to its shareholders, in order to generate funds to start operations and it can pay a salary to its owners or dividends to its shareholders.