December 6, 2020

Which Business Carrying On Method Is The Best?

There are various legal methods for carrying business. Each business carrying on method has some advantages and disadvantages that you should consider before choosing them. The following table demonstrates a comparative view of various business carrying on methods:

Depending on the circumstances, we will present the appropriate methods to the clients:

A. SOLE PROPRIETORSHIP:

A sole proprietorship exists whenever an individual carries on business for the individual’s own account without the involvement of other individuals, except as employees. It is the most basic form of business organization and can be used in a wide variety of circumstances. Many small businesses are organized as sole proprietorships.

B. PARTNERSHIP:

When two or more persons, whether individuals or corporations, carry on business together with a view to profit, the relationship is called a partnership, and the members of the partnership are called partners. A partnership is like a sole proprietorship in that it is relatively inexpensive to set up, there are few legal formalities required to create it, and the partners carry on the business themselves directly since the partnership is not a legal entity separate from its partners. If the owners want to allow employees to participate in the growth and profits of the business without giving them the management rights of a partner, incorporation or a limited partnership should be used. It should be noted that a limited partnership is not available if it is intended to give the employees an interest as a limited partner in return for the employees’ services. A corporation must be used if the employees are also to be owners,since employees may not be general partners.

 

The laws of Ontario recognize three types of partnerships: general partnerships; limited liability partnerships (LLPs); and limited partnerships. limited liability partnerships may only carry on business in Ontario for the purpose of practising a profession.

1. General Partnerships

In a general partnership, two or more owners share in the management of the business. All partners own the business and they are jointly and severally responsible for the liabilities of the partnership upto the total value of their personal assets. This means that, whether the partners act individually or in tandem, the responsibility for liability lies with each partner individually and with all partners jointly. Each partner is therefore fully responsible for the acts of every other partner and for the acts of the partnership as a whole. Section 2 of the Act defines a partnership as “the relation that subsists between persons carrying on a business in common with a view to profit” and contains three criteria: must be carrying on a business, with a view to profit, and the existence of an agreement to carry on business in common and share profits.

2. Limited Partnerships

In a limited partnership, all the partners own the assets of the business but there may be a combination of general and limited partners. General partners are involved in managing and operating the business. They are fully liable for the debts and obligations of the business,but they may be entitled to a greater share of the profits. Limited partners are not involved in managing the business. Their sole contribution is capital;as a result, they enjoy limited liability in that they cannot be held responsible for more than the amount of capital they contributed. A limited partnership is formed by filing a declaration with the Ministry of Government and Consumer Services signed by all the general partners and stating, among other things, the firm’s name, the general nature of its business, the names and addresses of the general partners, andthe address of the principal place of business in Ontario of the limited partnership. A declaration expires every five years but may be renewed by filing a new declaration before the expiry date.

C. INCORPORATIONS:

Corporation is the most common form of business organization. A corporation is a legal entity separate in law from its owners and can own property, carry on business,possess rights, and incur liabilities. Although the shareholders own the corporation through their ownership of shares, they do not own the property belonging to the corporation, and the rights and liabilities of the corporation are not the rights and liabilities of the shareholders.

 

The Best Method:

No one method is best for every case.  When deciding what business vehicle is appropriate in your particular situation, you must consider many criteria and their respective importance to you in cludingliability, the number and relationship of proprietors, borrowing requirements of your organization, costs, flexibility requirements, income tax and several other important issues.

 

Questions?

If you are thinking of establishing a business or have questions about the business carrying on methods, feel free to contact Rose Law Firm.Please note that the above article is intended for informational purposes only,and is not to be construed as legal advice. Please consult with Rose Law Firm or another legal professional for legal advice related to your business establishment.

 

About the Author:

Mohammad Sharbatian is an associate lawyer in Toronto at Rose Law Firm.

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