Corporate Law Frequently Asked Questions
The difference between my Will and my Power of Attorney?
Your corporate lawyer is more adept compared to a web service, they can paying attention to what your business need in great detail. Your lawyer can provide you with professional advice, help negotiate during transactions, and analyze benefits and risks in proposals. Especially when dealing with a large sum of money for contract or a very important project, hiring a corporate lawyer is your safest choice for the future of your business.
Pick the right structure for your business in Ontario
Knowing which business structure is right for your business is a very important decision to make. Most common types of structures for your business would be one among sole proprietorship, partnership, joint venture and corporation. When picking between these structures, there are several factors you will have to consider:
1. Tax benefits and drawbacks
3. Partners and investors
4. Management structure.
What’s a sole proprietorship? What are your drawbacks and benefits?
Sole proprietorship is a very simple structure. If you are building your company as a sole proprietor, your company would be self owned with all debt responsibilities on you. Since there is unlimited liability, both your business and personal assets can be claimed to fulfill a debt. Due to this independent nature, raising capital will be a harder task.
On the other hand, you will have lower costs to this startup. You have more control over financial planning and decision making. And all of the profits belongs to you with many tax advantages. Most small businesses are structured as sole proprietorships for these ideal requirements and benefits.
What’s a partnership? What are your drawbacks and benefits?
Like the term suggests, this structure allows two or more people to come together to share resources to make a profitable business. The partnership would leave all members sharing the responsibilities including debt. Since all members can legally bind each other without approval, there is a few things to remember. Make sure your business partner is the ideal one for the job to reduce a chance of conflict rising.
There are great benefits in a partnership. Much like a sole proprietorship, a partnership is easy to create with lower costs to launch the business. There is a larger management structure to share responsibilities and support the business with, although it means sharing authority. There is more sources of capital and there may even be some tax advantages.
Partnership is another great option for the structure of your business. Make sure to draw up a partnership agreement with terms and conditions to protect yourself in case of future disputes or a dissolution.
What is a Limited Liability Company (LLC)?
This is the one of the most simple and flexible organizational structures you may consider for your business. This structure gets subjected to self-employment tax. Although there is flexibility to this structure, roles can be confusing if not confirmed. Make sure to prepare a LLC Operating Agreement to avoid this. This agreement also strengthen the LLC when a member leaves, otherwise the most LLCs would cease to exist with identity depending on the members. The Operating Agreement would also outline how your LLC would be treated for taxes.
Compared to a sole proprietorship and a partnership, a LLC seems more advantageous although the costs are slightly higher. Like the name suggests, there is limited liability with no member being is personally liable for the company debts. An LLC would be a great option for your business from the easy setup to daily operations. Although your LLC would be simple enough for you manage on among the members, it is a good idea to keep in touch with an accountant or a lawyer.
What's the difference between a Limited Liability Partnership (LLP) and a Limited Liability Company (LLC)?
Both an LLP and LLC has limited liabilities. Unlike an LLC, an LLP must have more than one owner. However, none of the LLP owners need to be a general partner. If you are part of a professional group, such as lawyers or accountants, an LLP is a great fit for your business structure. An LLC combines the tax benefits of a sole proprietorship with the limited liability of a corporation.
What's a corporation? What are your benefits and drawbacks?
The largest structure for your business is a corporation. It is owned by the shareholders who elects a board of directors to oversee and run it. Since a corporation is a legally independent entity, making its members not personally liable for the debt the corporation might carry. There are two major types of corporations: S corporation and C corporation.
What is the difference between a C corporation and a S corporation?
There are two types of corporations: C corporations and S corporations.
An C corporation is the more common type between the two. It may have unlimited owners to help raise capital. This type of corporation can be subjected to corporate tax rates. Among the two, this is a great choice for start-up businesses, if you plan on bringing in more venture funds, grant equity to employees and plan on going public or being acquired by another.
An S corporation runs a little differently. While the corporation might file a tax return, the company will report the gains and the profits on the personal taxes to avoid double taxation. Both S and C corporations have limited liability.
What are the benefits of being a federally incorporated company versus a provincially incorporated company?
Federal incorporation would give your business name protection and more rights along with it to support your business. This level would bring your business more global recognition. However, expect a lot more paperwork for mandatory corporate files and this type of incorporation would also cost higher fees.
With provincial incorporation, your business is only entitled to operate in that particular jurisdiction and outside that border your business will have no name protection. If you plan on staying primarily in one province, this might be just enough for you. You can change your level of incorporation later if you like, but your business name might not be available.
What’s the role of the director of a company?
Shareholders and the board of directors are two bodies that help govern a company. Directors are appointed by the shareholders to manage the company. Directors might be delegated with certain powers. They take part in board meetings to make the important decisions for strategic and operational concerns of the business.
What’s the role of the president of a company?
A president is an executive level officer who is responsible for the daily operations of the company. He/She will report to the board of directors.
Who is a shareholder of a company?
These are part owners of a company who receives an interest by giving capital during the starting of a company or buying its shared. There are independent legal entities although they own the corporation. They have voting rights to elect the directors of the company and they also have the right to be present during annual general meetings along with access to annual reports.
Do I have to be 18 or over to be a shareholder?
No, you don’t but there are complex laws for people underage in becoming a shareholder. You may require legal advice for your specific situation.
What is a buy-sell agreement?
This agreement is among the shareholders of either an S or C corporation that’s not public. Prior to selling the shares to a third party, the shares must first be offered to the company itself or the corporation.
What are heads of terms?
It is also known as a letter of intent. This is usually used when parties are not ready to sign a detailed contract. They are intent to be binding.
Why is “due diligence” important when purchasing or selling a business?
It’s the research every potential buyer must do before making any decision. It will help assess the viability of the business. If not done or improperly done, there might be unpleasant surprises along the road. Take a look at the company’s legal standing, financial records, physical assets, IP, licenses, permits, important employees, and contracts.
What kind of licenses, registrations and permits will I be needing for my business?
Your business might need more than one permit or another official document depending on:
1. Type of business
2. Location of the business
3. Municipality where your business operates in
Neglect to obtain one, can result in a warning, a fine and depending on the situation serious outcomes that might include the court.
What is the difference between a copyright, trademark and a patent?
A copyright is granted to you once your original work is created. It helps you to choose how you work might be used by others which can done through licensing or other types of transfers.
A trademark is a word, symbol and/or design that is used to identify one party. Some examples of them are names, slogans and logos. Just like a copyright, a trademark does not need to be registered but if its registered there are great legal benefits to it.
A patent gives its creator exclusive rights in exchange of sharing it with the public. The main idea behind a patent is to encourage an innovative society that thrives on sharing and commercialization. It is much more expensive to go through the patent application process. Due to this, it is advised to gain assistance from an agent or an experienced attorney.
Do I need a corporate lawyer to prepare my contracts?
It isn’t required that a contract should be written by a lawyer before it’s binding, if there is sufficient contractual language to establishing the legally binding obligations.
When I die, what will happen to my business?
Depending on the structure of your business, your role and how you planned, there will be different outcomes. If it highly advised a last will is prepared to assist the governing process when settling debts, distributing the assets and handling liabilities. Without formal agreements, it is highly likely that a business might dissolve.