Building a business from the ground up can be a challenge, but one that also has the potential to be exceedingly rewarding. To get your idea off the ground, you’ll need more than a business plan and startup capital: you’ll need to determine the proper business structure to get started in Edmonton, too. Business lawyers can help.

Will you go solo or speak to a corporate lawyer in Edmonton? The business structure you choose will significantly impact how you operate and the legal and financial structures you must work with now and later. Before you set up your business, ensure you understand structural options well. Let’s look at those choices here.

Sole Proprietorships

A sole proprietorship is the simplest business structure and one of the easiest types to set up. As the name implies, you are the sole owner. You must register your business name to begin operating, but it is important to note that registration does not protect a sole proprietorship’s name. If your business falls under any particular regulations, you must also have the appropriate licenses for operation. Profits of the business would flow directly to you, but you would also be taxed directly on that profit as income. You would have more flexibility, control, and freedom but also a significant personal risk, as all liabilities of the business would be your personal liabilities.

Partnerships

Partnerships are similar to sole proprietorships aside from one clear difference: these arrangements involve one or more business partners. This structure can provide additional capital and operating support, but it could also make decision-making related to the direction of the business more complex.

In a general partnership, there are no limitations on liability in a partnership. Indeed, all partners are jointly and severally liable for this arrangement. One partner who incurs substantial debt may also be liable for the other partner. The same is true if a partner has a judgment entered against them, such as for negligence. All partners will be liable for such costs. In certain cases, you may be permitted to have a limited liability partnership, which can limit each partner’s liability to their own wrongdoing.

Corporations

Corporations are the most common form of business structures. Incorporating your business requires more steps and additional expenses to set up and operate, but it can provide essential benefits. Corporations are legal entities separate from their owners/shareholders. Decisions in a corporation often occur within a more formalized business structure with leaders in different positions.

Corporations may have tax benefits, as the corporation’s income is separate from your income as a shareholder and director, and can provide you the opportunity to make sensible income distributions for the business. Most importantly, corporations provide liability limitations for shareholders. Unlike proprietorships and partnerships, you and other shareholders are not directly or personally responsible for the debts of the business. However, it is important to note that in certain situations, a shareholder or director of a corporation may be held personally liable for the conduct or liabilities of the corporation.  

Co-Operatives

Co-operatives are a corporation format most commonly used by non-profits. However, some co-operatives operate on a for-profit basis. Control of co-operatives falls to the members, who have limited liability for business debts. Business decisions occur collectively, with the co-operative members typically casting votes for or against proposed measures.

This structure can benefit specific causes, but it can also prove challenging to manage without reliable partners. Conflicts and disagreements in a co-operative can take more time and effort to untangle due to the interlinked nature of decision making.

Which Structure Should You Choose?

The appropriate structure will depend on many different factors. Small businesses may work best initially as a sole proprietorship or partnership. However, over time and with growth, increasing risks may mean it makes more sense to incorporate formally. Remember, corporations confer tax and liability advantages that are not accessible under other structures.

However, a corporation’s added costs and administrative requirements may not seem worthwhile if your business only involves you and a few employees. Consulting with experienced legal professionals who can answer questions and address specific concerns can help clarify your decisions.

Find Experienced Support to Set Up Your Business Today

As we’ve seen, there are many structural options to consider. Sole proprietorships let you hit the ground running and control your business directly but have greater risk. A partnership may also be right for you, or you may need a corporation’s stronger legal shield. Our Edmonton business lawyers can support a thorough, well-informed assessment.

From tax implications to liability concerns and more, a corporate lawyer in Edmonton can help you understand the nuances of this process. Connect with Lypkie Henderson today to explore opportunities for learning, guidance, and structuring your business for the future.