Week 4 Small Business Midterm

Business Structures

• Sole Proprietorship: an unincorporated business owned by one person or married couple, with the legal name usually being the owner's name.
• Characteristics: owner makes all important decisions, responsible for day-to-day activities, retains income earned, and profits are taxed as personal income.
• Advantages: easy to create, limited initial costs, and can be launched quickly.

Partnerships

• Default business organization: when two or more people work together who are not legally married.
• Voluntary association: to conduct business for profit, with two required elements: common interest to conduct business together and understanding to share profits and losses.
• Types: general partnership and limited partnership.

General Partnership

• Partners participate fully: in running the business and share in profits or losses.
• Legal documents: not required to form a partnership, but articles of partnership can set forth how the partnership will be run.
• Unlimited liability: every partner is jointly liable for the partnership's debts and obligations.

Limited Partnership

• Two types of partners: general partner who runs the business and is responsible for liabilities, and limited partners who have limited involvement and losses limited to their investment.
• Main purpose: to allow people to invest in a business without managing it and without risking more than their investment.

Corporations

• Legal entity: separate and distinct from its owners, can own assets and incur debt.
• Characteristics: can be created for a limited duration, typically expected to have perpetual existence, and has continuity because ownership can be changed without dissolving or affecting business operations.
• Must be formed: in compliance with the law of Canada (Federal Corporation) or of the province (Provincial Corporation).

Articles of Incorporation

• Required elements: business name, whether the company is for-profit or nonprofit, founders' names, company's purpose, number of shares issued initially, and par value of shares.

Types of Corporations

• Not-for-Profit (NFP) Corporation: purpose is not to distribute profit to members, directors, or officers, but to generate profit used to further the goals of the NFP.
• Governmental Corporation: not organized for profit, does not have shareholders, and operates under different statutes than business corporations.
• Business Corporations: two main types - broadly held (or public) and closely held (or private) corporations.

Why Incorporate?

• Legitimize business name and reputation: incorporate to establish a reputable business name.
• Separate personal assets from business liabilities: incorporate to protect personal assets.
• Grow a large business: incorporate to grow a business that can be sold to other owners.
• Lower corporate tax rates: incorporate to take advantage of lower corporate tax rates.
• Raise capital from investors: incorporate to raise capital from investors.
• Borrow money at lower interest rates: incorporate to borrow money at lower interest rates.
• Sell shares: incorporate to sell shares to others.
• Defer paying personal income tax: incorporate to keep money in the business to defer paying personal income tax.

Business Number and HST Number

• Business Number (BN): a unique program account identifier with 9 digits, associated only with the business.
• Streamlines dealings with federal government: a business number streamlines how the business deals with the federal government of Canada.
• Issued by CRA: the business number is issued by the Canada Revenue Agency (CRA).
• Registering for a business number: the easiest way to register for a business number in Ontario is to use the CRA's Business Registration Online (BRO) service.

Business License/Number Requirements

• Sole Proprietor/Partnerships: depends on the industry, but no BL (Master Business Licence) / BN is required for tax purposes, given by CRA. A business BN is required once making over $30,000.
• Corporations: do require a BL/BN.