Business Organizations

The three most common forms of business organizations are sole proprietorships, partnerships, and corporations. You may be exposed to different legal obligations and liabilities depending on the chosen form of business structure.

It is important to consult with a lawyer before and while you carry on business to better understand your rights and responsibilities.

SOLE PROPRIETORSHIPS

Sole Proprietorships forms when a person (the sole proprietor) starts to carry on business activities. As a result, the sole proprietor is one and the same with the business. This has several important implications:

The sole proprietor has exclusive responsibility for performing all contracts entered into by the business
The sole proprietor will be liable for all torts committed by her or any of the employees, in connection with the business
The sole proprietor's personal assets may be seized to fulfil the obligations of the business

While no form procedure is necessary to carry on a sole proprietorship, it is important to register the business name that you are operating under.

PARTNERSHIPS

A partnership is formed when two or more persons carry on business together with a view to profit. There are different types of partnerships:

General Partnership: each partner is liable to contribute equally to any debt owed by the partnership.
Limited Partnership: a partner shares in the profits and is liable for debts but does not participate in the operations of the business.
Limited Liability Partnership: Formed by professionals such as medical engineers, accountants, lawyers, and medical professionals.

It is important to remember that assets brought into the business may be considered assets of the partnerships. In order to limit future disputes, it is recommended for the parties to enter into a partnership agreement.

If you are working with someone on a project but do not intend to form a partnership, it is important to take the necessary steps to distinguish the form of business. This may require a establishing a joint venture agreement or executing other contracts that establish the boundaries of the partnership.

CORPORATIONS

You are able to incorporate your business either federally or provincially. Once incorporated, the business becomes a separate legal entity. The property of the corporation is not the property of the shareholders and the corporation is taxed separately. This is often done to reduce liability to shareholders. Shareholders have rights to the corporation through their ownership of shares and are liable for the debts of the corporation only in as much as they have invested.

Our business and corporate lawyer can help you structure your business, register your corporation, and draft the appropriate documents to protect your interests, including a shareholders agreement or partnership contracts.