What To Know When Starting A Business
Starting a new business can be an exciting and momentous event in your life. It also requires a lot of planning because you have to consider issues that will affect your bottom line. Those include tax disadvantages and advantages, how much liability attaches to you and what type of business you want to purchase. The type of business you start will actually determine liability consequences and what tax implications you assume.
There are three main types of business structures that individuals can choose:
- Sole Proprietorship
Corporations are advantageous when it comes to issues of liability. A corporation is considered a separate legal entity, and liability attaches only to the corporation. In other words, if creditors sue, they would sue the corporation and not the owner or shareholders. The disadvantage of corporations are that they are quite expensive to set up. Another disadvantage can be taxes. Shareholders of corporations have twice the tax obligations — they are taxed at both a personal level and at the level of the corporations. If set up properly however, a corporation can enjoy lower taxes and tax breaks.
Sole Proprietorships And Partnerships
In a sole proprietorship you carry all the liability for the business as its only owner. If you default on payments to creditors, you will be responsible to pay them off. Personal assets can be used because you carry unlimited debt liability. The main advantage to this type of business is that it’s cheaper to set up than a corporation. In terms of taxes, the amount you pay depends on the profit margins of your business. If your business is profitable, you’ll pay more taxes.
In partnerships, each partner has personal liability. Liability issues and tax implications are similar to those of sole proprietorships. The only difference is that each partner has to file their own individual tax returns.
Which Business Structure Should I Choose?
The type of structure you should choose depends on your business goals and needs. You also need to consider which business structure will give less liability and more tax advantages.
At Filice Law, we can navigate you through your choices. We will explain the benefits and drawbacks of each structure. We will evaluate your objectives and match your business needs and goals to the structure best suited to you. We will look at minimizing liability and taxes and maximizing your investment. Our advice will help you get on the right path to a successful business.
Call Us For A Consultation
If you have more questions about business structures, liability issues and tax implications, call our Ancaster, Ontario office at 905-581-2266. You can also reach our corporate lawyer using our online form.