400 - 628 Sixth Avenue New Westminster,
B.C. V3M 6Z1 Canada
Telephone: (604) 526-1805
Facsimile: (604) 526-8056
E-mail:
info@kmlawoffice.com
kinman@kmlawoffice.com
mulholland@kmlawoffice.com
Q. What is the difference between a Limited Company and Incorporation?
A. Nothing. The words Limited Company and Incorporation mean the same thing and are often used interchangeably. The owners of a Limited Company are called share holders. A Limited Company must identify itself by using the words such as “Inc”, “Limited”, or “Ltd”. in its name.
The word company can be used to refer to a partnership or even a sole proprietorship. A partnership is a group of two or more individuals who have decided to carry on business together. A sole proprietorship is one person carrying on business under a trade name. If the full legal name of a business does not include “Inc”, “Limited” or “Ltd” at the end of its name, it is most probably a partnership or a sole proprietorship.
Q. If I am going to set up a business, what are the advantages and disadvantages of incorporating a company?
A. Depending on the type of business you would like to operate, there are valid reasons to incorporate a Limited Company. A Limited Company is a legal entity which at law exists separate and apart from its shareholders. As a result, a shareholder in a Limited Company, is not necessarily legally responsible for the debts or other liabilities of the incorporation in which he or she holds shares.
There can also be valid tax planning reasons to incorporate a Limited Company. Business income can be paid to the Limited Company and out to its shareholders, for example, by way of Dividends. Also, a Limited Company can be used for the purposes of “splitting” income between the shareholders so as to keep the Income Tax rate as low as possible. If you are interested in determining whether there may be tax advantages to incorporating a company for your business, your lawyer will suggest that you seek the advice of a good accountant.
The major disadvantage most people find when faced with the question of whether or not to go ahead with incorporating a Limited Company is cost. Your lawyer will provide you with a quote for the legal fees payable for incorporating. However, there are also fixed fees which must be paid to the Government if you decide to go ahead with incorporating a Limited Company. Most Limited Companies are “Incorporated” in the Province where the shareholders propose to carry on business. However, the Government of Canada also has a Company Registry.
Q. If I decide to incorporate a Limited Company, do I need a Shareholders’ Agreement?
A. If you decide to incorporate a Limited Company, your lawyer will sometimes recommend that you have a Shareholders’ Agreement prepared. As its name suggests, this type of Agreement governs the relationship between the Shareholders of a Limited Company. If the Shareholders are close family members, such an agreement may not be necessary. However, if the shareholders are otherwise independent business people, your lawyer will almost certainly recommend that a Shareholders Agreement be prepared.
Q. What are the advantages and disadvantages of operating a business as a Partnership?
A. Partnerships can be very successful type of business organization. However, if you decide to operate a business with one or more partners, you should be aware that you can generally be held legally responsible for the acts or omissions of your other partners.
If you do decide to carry on business as a Partnership as opposed to as Shareholders in a Limited Company, your lawyer will almost certainly recommend that you enter into a Partnership Agreement.
Q. If I wish to buy an existing business, what should I do?
A. Businesses can be bought and sold like any other asset. However, buying an existing business is a complicated matter, and should be handled by a lawyer. Often a real estate agent is used to undertake the initial negotiations for the purchase of the business, but you should consult a lawyer before the deal is made final.
If you decide to make an offer to purchase a business using the services of a lawyer, ask him or her to make the offer subject to the legal approval. In this way your lawyer can ensure that all material contracts which the business needs to operate are properly assigned to you as the purchaser. You should also consider seeking accounting advice before the deal is finalized. Your accountant will be able to review financial documents related to the operation of the business you would like to buy, and give you advice on whether the price you are paying for the business is appropriate.
The cost of consulting a lawyer and an accountant before you finalize your purchase of a business, will depend on the type of business you are trying to buy. However, that cost will almost certainly be worth the peace of mind in knowing that you are obtaining proper title to the business as well as entitlement to all of the contracts you will need to carry on operation of the business. Imagine making final arrangements to buy a business, only to find that the Landlord for the business premises will not give you a lease?
Your lawyer will also provide you with advice on how to arrange for insurance on your new business, as well as explaining to you what transfer taxes you are obligated to pay when you close your deal.
Back to FAQs topics homepage
