Starting a business requires careful analysis and precise design of what the enterprise should be. This will help the proprietor achieve his main goal – to earn profit. Basic knowledge of the business entities and benefits in Canada will aid him in planning for the success of his venture.
1. Sole Trading
The sole trading business is the simplest among the four structures. It is owned and managed by a person who shoulders all the legal responsibilities related herewith.
The costs in setting up a sole proprietorship are normally low. Registration and license fees are usually the only things required in starting this business.
The trader has the option on the amount of capital he wants to invest. He has the chance of putting up an enterprise with how much he can only provide.
One of the major aspect of business structure and benefits in Canada of having this type of business is the privilege of getting all the profit it generated. The proprietor has the individual claim over all the assets that belong to the enterprise since he and his business have no legal distinction.
Income provided by the entity is treated as the personal income of the owner, thus, it is subject to individual tax rates. Therefore, if the business produces low income, the trader may subtract his revenue deficit from his personal income, putting him to lower tax brackets.
The sole proprietor invests according to the availability of his resources. Trouble in raising enough capital may limit the operations of the business, resulting in lower profit.
Due to the unlimited liability principle, the owner needs to use his personal wealth to write-off the debts of the business if the entity’s assets are not enough.
Having the entire claim over the profit generated by the business, the trader shoulders all the tax liability included in his enterprise. Additionally, if the business is prospering, there is a probability that the owner may be placed in a higher tax bracket.
Partnership is a type of business structure and benefits in Canada that is formed when two or more persons agree to merge funds, property, or talent in order to establish an enterprise.
Like the sole proprietorship, setup costs are fairly low since partners share and contribute the necessary things needed to operate this business. The entity may grow faster with more resources available which results to higher profit.
Management, planning and market assessments are made by the partners. Each of them may take part in the decision-making, which is crucial in every enterprise. More ideas may be pooled in and better strategies may be merged for the furtherance of the business.
The profit or loss in a partnership is shared by both owners. This business is not a separate entity, thus partners are regarded as individual employees who are deemed to pay taxes according to how much they share in their business. In case of losses or low income, tax liabilities are considerably low.
A successful partnership business requires managers who work in synergy with each other. In times when partners have quarrels and disagreements, the venture may experience adverse effects on business structure and downfall in Canada.
Unlimited liability is one of the major disadvantages of partnership. Parallel to sole traders, partners subject their personal assets to the creditors’ claim should the business fail to pay off the debts.
High profits are taxed based on high rates, meaning higher tax liabilities are imposed to the business.
One of the four business entities and benefits in Canada is the corporation. A corporation is managed and operated by the Board of Directors and is classified as a separate legal entity that may function like a ‘natural’ person.
Obtaining a large sum of capital in a corporation is not a problem since a number of investors finance the operations of this venture.
Shareholders invest in a company, making them one of the owners of the said entity. Their ownership and profit is limited to how much they have contributed or how many shares they have acquired. They are also entitled to transfer their rights to another party should they desire to do so.
A corporation may continue to operate even when conflicts among the directors arise. Unlike in partnership, this type of business is not easily liquidated.
Tax liabilities of a corporation are separated from its owners and rates are normally lower.
Corporations are obliged to settle many legal fees and startup requirements. If the acquired capital is low, it may lead to challenges in business structure and downfall in Canada.
Since a corporation ideally produces more profit, it is subject to a stricter legal liability. Accurate documentations, precise transactions and records and correct representation of data are presented to the concerned sector of the government for reviewing.
Like in partnership, arguments and disagreements may arise among the directors of a corporation which may yield negative results in the business.
The last business structure and benefits in Canada is the cooperative. This venture is owned and controlled by the members in an association who combined their available resources for the formation of the organization.
A cooperative is usually democratic in nature, which means that the fellows have the right to vote whenever they are or not in favor of a certain business undertaking. In terms of shouldering the debts of the association, the members are only liable for a fixed amount.
Benefitsand the profit before tax are divided among the members. This means that since the income was already reduced, tax rates are now lower.
For a cooperative business to succeed, full participation of the members is maintained but there are instances when this is not possible. Other obligations may also arise if this type of business has already undertaken different ventures such as selling, marketing, importing, and others.
In the end, ample knowledge of the basic operations of the different business entities and benefits in Canada will help the aspiring entrepreneur decide on what industry he thinks is profitable.