New businesses face many challenges, whether for hiring or for funding. It is important to know the advantages and disadvantages of individual companies, multiple-name companies, as well as corporations before deciding.
Where to start?
About 70% of new business owners opt to register as a sole proprietorship, the simplest form of business structure in which the owner runs the business on its own and is personally liable for its debts.
But the fact that this is the most popular type of business does not mean that it is necessarily the best option for you.
Depending on the type of business you operate and your individual needs, it may be more logical to establish a partnership or a company.
The company in individual name
One of the reasons why this business structure is so popular is that owners have full control over their business and can keep all the profits.
An individual business also tends to be simple and inexpensive to create, involves low startup costs and is less burdened by government regulation.
Finally, the sole proprietors have tax advantages (such as the ability to deduct from their taxes the losses incurred on their personal income) if their company ever encounters problems.
However, just as the sole owner is the only one who pocketed the profits of his business, he is also the only one who must pay to pay off the debts incurred by his company.
Their corporate responsibility is unlimited, which means that creditors can pick up their personal assets to cover the debts of the company.
In addition, as a sole proprietor, the taxes you pay on your business are based on your personal rate, which means you could end up in the top tax bracket when your business starts to be profitable.
The partnership
By entering a business partnership, you will share both the benefits and the responsibility of the business with your partner.
As with individual companies, partnerships are relatively simple to implement, and partners can pool their resources to start a business.
The various partners of the company can establish a clear partnership agreement, allowing you to protect your interests, and can benefit from their combined experience.
Finally, as for sole proprietorships, partnerships offer tax benefits when a new business loses money.
On the other hand, as for individual companies, there is no legal distinction between the company and the different members of a partnership, which means that your partner and you may be forced to pay your debts. Business with your personal property.
Beyond that, it is your responsibility to identify a partner you trust with whom you can work effectively and make joint business decisions.
The corporation
Unlike individual companies or multiple names, corporations are separate legal entities from shareholders who own them.
This limited liability function is one of the main advantages of corporations, as creditors cannot requisition your personal assets to pay off debts.
It is also easier to transfer the ownership of a corporation and to raise the capital needed to set it up.
Incorporating means that you will be subject to more regulations, and this type of business organization tends to cost more to establish than partnerships or individual businesses.
Finally, the establishment of a corporation will require you to produce and maintain much more documentation, including the minutes of major meetings, and that you submit these documents to the government each year.
Every business is different, and there is no company structure that is not suitable for everyone. Unless you think you have all the necessary information, it would be important to consult an accountant as well as a lawyer you trust to decide what kind of business you would like to start.