Starting a business: yes, but how?
When someone decides to start a business, everything must be done quickly and everyone knows that work must be accomplished at all costs. But it is often after several weeks of operations that this same person begins to ask more delicate questions (for example: if something goes wrong, will I be personally responsible? How can I protect my family if my company gets sued? Do I have to be taxed on my company’s income?). The first question to ask yourself before you even begin is: how am I going to run my business? Here is a summary of the advantages and disadvantages of each way of doing business.
Advantages: At the organizational and decisional level, it is super simple, since the company is summed up to you and simplicity means less operating cost. It is thus easy to stop if you are fed up. There is a minimal government control and it is a good way to start with less than $ 40,000 in revenue.
Disadvantages: You are personally responsible for all debts of the company, which can lead to your bankruptcy if your business goes wrong. The expansion and succession of the company are very limited. The company’s income is directly allocated to you, so the tax rate will vary depending on your income (range). Your personal responsibility is at stake. The company is terminated upon your death.
Two partners or more
Advantages: There is great flexibility in terms of creation and organization. The company’s operation is simple (it is operated as you have decided with your partners in the contract). There is low operating cost. It is easy to include or exclude associates (expansion and succession) and there is a minimal government control. Your death does not automatically terminate the company.
Disadvantages: You are personally liable for the debts, so your bankruptcy is possible if the company has problems. Your share of profits in the company is directly attributed to you, so the tax rate will vary depending on your income (range). Decisions are collectively made; that is why potential conflicts between associates may arise.
Joint stock company
Advantages: You are not responsible for the debts and the problems of the company (except for some cases). The company is a separate independent legal person and your death does not terminate it. It is easy to plan a succession and manage the expansion. The company suggests stability and solidity. The taxation of a company is much more advantageous and the distribution of profits between shareholders can be carried on in several ways.
Disadvantages: Its structure is rigid, formalistic and sometimes complex. The company operates according to laws and regulations that are already established. The government control over the company is very high. The operating costs are high. It is much more difficult to terminate everything overnight (too much paperwork).
Kindly note that the information provided herein is general and should not apply to all cases without distinction. A consultation at VSB Title Attorneys is necessary in order to obtain personalized legal advice in accordance to your situation.
Author: Notary Timothée VALLÉE