Friday

Types of Business Organizations

Anyone can start their own business at any time. Business is described as transaction(s) of a sole owner, or between parties, such as seller-vendor or professional service provider service user’s relationship. In addition, sole owner or these business parties have the intention of making of profits as the result of transaction(s) in trade, profession, service, venture, and manufacturing activities.

Starting your own business can be so easy if you have done your little research of what’s involved right from the first day until the end of your annual business period (fiscal period), especially when the taxman (Canada Revenue Agency, or IRS, or other governing tax agencies) wants you to report on how much you made during the taxation period.
Grandville Island Public Market, and looking at Vancouver business city centre (other side of Granville/Burrard Bridge),  Vancouver, BC Canada
Basic Things You Need To Know During Start-up Year:

(1) Types of Business Organizations
(2) Business Product to sell and manufacture and service to perform
(3) How to keep business records
(4) Planning to have employees or sub-contracting
(5) Year-end Requirements
(6) Dealing with the taxman (Canada Revenue Agency)
(7) Preparing for the next fiscal period

Types of Business Organizations:
(a) Sole Proprietorship
(b) Partnership
(c) Corporation

A. Sole Proprietorship

It is defined as unincorporated company or business. It is usually common to an individual who provides services, sells and manufactures or produces products for profit to adapt this type or business organization. Although it is recommended to register the sole proprietorship with the governing agency where your business place is, but it is not mandatory to register it.  
Getting into MLM business as an Independent Associate is an example of a Sole Proprietorship.
As to debts or liabilities obligation, the owner and sole proprietorship entity are not separated from each other. Thus, if company incurred company debts or liabilities obligations, the owner is 100% liable. However, the operation of the business is viewed as separated from owner’s personal activities of the owner. Also, the same way as to reporting for tax purposes, business activities (reporting of income and expenses) reported separately from owner’s personal financial activities. Sole proprietor will be taxed as an individual for their earnings.
Being a Professional Model is another example of a Sole Proprietorship.
B. Partnership

It is defined as unincorporated company or business.  This type of business organization is composed of two or more owners as partners.  There are types of partnership formation: (1) General Partnership, (2) Limited Partnership (LP), (3) Limited Liability Company (LLC), and (4) Limited Liability Partnership (LLP). 

Just like sole proprietorship, General Partnership company’s debts or liabilities are 100% obligation of the general partners.  Though it is highly recommended, formation of general partnership agreement should be in writing, but is not mandatory.  Having partnership agreement makes it easier to all parties involved as to the division of profits each period, and distribution of resources upon dissolution of the business.  As to Limited Partnership (LP), LLC and LLP, these types of partnerships require filing to appropriate agency. Filing of certificate is required for LP; filing of articles for LLC; and filing of statement for LLP are required.

Limited Partnership (LP) requires at least one general partner who manages the business, limited partners have no management privileges.  As to Limited Liability Company (LLC), members don’t have general partner (s), members are managers themselves. LLC members are not personally liable more than their investment.  As to Limited Liability Partnership (LLP), just like LLC, no need of general partner(s), LLP members are managers, and only liable as per LLP obligation, except in the case of LLP member’s own negligence.  

In partnership, accounting and taxation are viewed as separate from the company operation and partners/members personal financial activities. Partnership is not taxed directly, but considered as a “flow through” income to partners/members. The partnership net income reported to the Canada Revenue Agency (depending on required numbers of partners in the partnership). Partnership that has 6 or more has to file partnership information tax return. 
Being in partnership with someone (a partner) to get into business, like making these unique Totem poles with the intention of making profit, is an example of Partnership business organization.
C. Corporation

It is defined as incorporated entity, and must file an Article of Incorporation Charter to governing agency. The Article has to include information of the name of the corporation, corporation registered agent, incorporators, number of shares or capital stocks issued.  As a corporation, it has the right to operate as a separate entity from the owners (shareholders). It has a limited liability for owners, limited to their investment.

Corporation is usually managed by Board of Directors elected by shareholders. Board of Directors will appoint officers to run the day to day operation of the corporation, while the officer will employs manager(s), employees, and sub-contractors.  The corporation and the shareholders are 100% separated from each other as to personal liabilities by the shareholders (limited to their investment).  Accounting focus on corporation as a separate entity, and shareholders are free to transfer ownership (shares), except agreed otherwise.

A corporation is taxed separately from its owners (shareholders) and has to file an income tax return for the corporation itself. The dividends distributed to shareholders are taxed to them when they file their Individuals income tax returns. Thus, corporation income is taxed on corporate level, and taxed again on shareholders level.  
Most cruiseship lines are incorporated for a good reason, especially if it has a ship like this one. 
Note: The continuation of this topic, “So You Want To Start Your Own Business?” will be continued on next post, “Part 2 of 7: Business Product to sell and manufacture and service to perform”. Until then. 

Any Comments/Inquiries please contact me at:

Earla RiopelBSCom(USA), DipAcc(UBC)
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