BUSINESS LAW – REGISTERED OR INCORPORATED?

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The main legal forms for operating a business in San Diego are registered or “registered” sole proprietorships and corporations. Is it necessary to incorporate it? What are the pros and cons? Diagnosis of an important business decision with the help of M&A advisory.

SOLE BUSINESS

The sole proprietorship belongs to a single person and is not separate from the individual who operates it. The natural person is the owner of his business and the contracts he signs bind him personally.

Consequently, in the event of non-compliance with his obligations under the contracts, the natural person may be prosecuted, and all his property will be subject to seizure. The debts of the company are the debts of the individual. The same goes for profits. This legal form is often used by self-employed workers and freelancers.

COMPANY

The famous “inc. is a legal person in its own right, a separate legal entity owned by the shareholders. The company carries on a business and its activities, it has its own contracts, its own obligations, and its own debts, distinct from those of the shareholders. We are talking here about the limited liability of shareholders, who are thus better protected from creditors. The company appoints administrators who manage the activities and who also have responsibilities before the law. This legal form is subject to the Companies Act or the Canada Business Corporations Act.

CHARACTERISTICS OF THE SOLE BUSINESS

A sole proprietorship can be set up easily, quickly, and inexpensively. The individual need only register at $32 for registration. Operating a sole proprietorship is very simple, with few formalities and no separate tax report, except that of the owner as an individual, of course. It is an interesting legal form for SMEs with little income or few employees.

However, a sole proprietorship does not shield its owner from prosecution. The liability of the entrepreneur is not limited, and, in the event of a lawsuit, all his personal assets are exposed in court. It is also a less flexible legal form, for example, to integrate a partner within the company.

In terms of taxes, the individual owner of a sole proprietorship will have to pay taxes on all profits resulting from the operation of his business since it belongs to him personally. You can contact the M&A advisor to get the job done.

CHARACTERISTICS OF “INC. The corporation

is more expensive to set up and operate than a sole proprietorship. For example, setting up a corporation can cost between $1,200 and $1,600 in initial fees and expenses, plus other annual costs thereafter for updates to the corporation’s book, tax reports, and for the shareholder agreement. The professional services of a notary and an accountant are required.

The first advantage of the company is the limited liability for its shareholders and directors. Society generates contracts and obligations of its own. She is responsible for the gestures and actions she takes. Consequently, it is the company that will be prosecuted if it does not respect its obligations and not the shareholders, subject to the responsibility of the directors of the company in certain cases.

However, limited liability is not absolute. The directors of a company can be personally prosecuted in the event of fraud, for example for a loan from a bank under false representations or for certain debts, for example for the omission of GST and QST remittances, and for deductions of the employee-related source (DAS).

The second advantage is of a fiscal nature: the company benefits from the possibility of deferring part of the tax payable. Indeed, since the company is a separate person, it pays taxes on its profits while the shareholder pays taxes on the income paid by his company in the form of salary, dividends, or others. Take the case of a shareholder who does not need income for a year.

If he does not take any income from the company, then he will not pay personal tax. Only the company will pay taxes on its profits, usually at a more advantageous rate. On the other hand, when a shareholder needs all the profits of his company for his needs, the principle of tax integration applies. Thereby,

The third advantage is the flexibility of the legal form. In a company, it is possible to easily integrate new shareholders or exchange shares without changing the legal form of the company. In short, the company is generally a more flexible vehicle than the sole proprietorship. The company may also prove to be more advantageous from a tax and legal standpoint. It is recommended to consult a qualified notary to find out more.

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