To Incorporate or Not Incorporate?
There are now ads pushing how easy it is to incorporate, but without prior legal advice., many business owners wonder whether they should incorporate now, when they start their business, or later – if at all. The decision to incorporate is a big one and must not to be done without talking several times with both your accountant and lawyer – there are major tax and legal consequences of incorporating your business.
In general a business for profit is usually in one of three different legal forms: a Proprietorship, a Partnership or an Incorporation. Which legal form is appropriate for your business depends on your circumstances – which of course can change with time. Like your dentist, you should see your accountant and lawyer several times a year to prevent problems. Prevention is always cheaper than the cure.
For non-profit organizations there is the Society structure, and the Cooperative for businesses run by the membership, both similar to the corporate structure.
A Proprietorship is an unincorporated business owned by one person. All the liabilities and tax deductions and net profits belong to you personally.
A Partnership is an unincorporated business owned by two or more people. It is very important to have a written partnership agreement defining the rights and liabilities of each partner – otherwise each partner is 100% liable to third parties with the risk that you are left with all the liability if your partners leave you.
An Incorporation is a separate person in law, created when the proper incorporation process is followed. Like a partnership you can have more than one owner who are known as shareholders. Like partnerships, it is very important to have a shareholder agreement to decide how to life's problems will be solved – it is much cheaper to prevent than to cure problems. Meet with your lawyer soon.