|
Business entity options
|
In the United States, there are various forms of business entities. The common forms of business entities are: |
 |
Sole Proprietor |
|
Partnership (General or Limited Partnerships) |
|
Corporations ("C" Corporations and "S" Corporations) |
|
Limited Liability Company (LLC) |
|
Sole Proprietor |
A sole proprietor is the entity in which a person opens a business alone without incorporation or any agreement with others. No forms or filing is required and the tax liability is the sole responsibility of the owner on an individual basis. Any debt or other liability is totally the responsibility of the proprietor and to the extent of all his personal and business assets. |
| General Partnership |
A General Partnership is formed when two or more persons get together to conduct a business or trade. A verbal agreement between the partners is enough; however, a written agreement is encouraged. There are no filing or registration requirements. Each partner is taxed on his share of the profits as distributed by the partnership and treated as personal income. |
| Limited Partnership |
A Limited Partnership is very similar to the General Partnership, however, the Limited partners are not liable for partnership debt and only their investment is at risk. In the Limited Partnership, there must be a general partner who has total management responsibility. If the limited partner gets involved in management, they risk losing their liability protection. The Limited Partnership is required to file a document with the Secretary-of-State and the partnership is governed by a Limited partnership Agreement. |
| Corporation |
A corporation is limited by shares, therefore carries with it protection for its stockholders and the corporation pays taxes. The corporation pays taxes on its earnings and the owners pay taxes on the distribution of profits, after tax (dividends), which makes it a double taxation entity. The corporation is formed by filing Articles of incorporation with the Secretary-of-State and the control of the corporation is the responsibility of the Board of Directors, scrupulous records and accounts must be kept.
The subchapter "S" Corporation is a variation of the "C" Corporation and under a different IRS Tax Code. The "S" Corporation is allowed the flow-through taxation treatment similar to that of a partnership and sole proprietorship. Double taxation is avoided by its owners/shareholders. To maintain subchapter "S" Corporation status and therefore flow-through taxation status, there is a requirement for strict compliance with stringent rules. |
| Limited liability company (LLC) |
The Limited Liability Company (LLC) is a hybrid with similarities and differences with the other business forms: |
It is a separate legal entity like a corporation |
It does not have shareholders, but rather it has members. |
Its members are protected with Limited Liability. Their personal liability is limited to the amount invested in the LLC |
For USA incorporation the members can be physical persons or entities, including corporations, partnerships, trusts etc. |
Non-residents can be members of the LLC. |
It is taxed like a partnership which has the benefit of flow-through taxation. |
Can be formed with any amount of members. |
An LLC does not pay taxes; its resident members are tax liable as personal income similar to a partnership. Non-resident members are liable for taxes on income derived from the US. |
Foreign members are not liable to tax and don't have to file tax forms if the income derived is not from the United States. |
The only document required to register your company, (company formation), with the local Secretary-of-State is the Articles of Organization. |
An LLC has a limited life span. |
|
The US Limited Liability Company allows Non-US resident full ownership and these members are not required to file any tax returns once the income of their LLC is not derived from the United States and it is not effectively connected with trade or business within the United States nor do they employ US residents or rely on a dedicated place of business within the United States. This does not apply to an office which is infrequently used. |
 |
 |
| Types of business entities |
Canadian law recognizes several different business entities each of which has its own merits depending on the use for which it is intended. In order to set up a business in Canada, one may employ any of these vehicles. |
| Sole Proprietorships |
A sole proprietorship is the simplest form of business enterprise in Canada. The business is directly owned by one person who is responsible for the business, including all liabilities. Unless the sole proprietorship operates under a name other than the name of the individual who owns it there is no registration of that business. If however a business name is going to be used other than the name of the owner, registration is required in each province where the business operates. |
| Partnerships |
Partnerships are businesses operated by two or more individuals or corporations together pursuant to an agreement between them. Partnerships must be registered. There are three types of partnership, general partnership, limited partnership and limited liability partnership.
General partnerships provide no protection from liability for the partners against debts, losses or torts.
Limited partnerships comprise of one general partner and limited partners. General partners are liable for all debts and losses and are responsible for the management of the business. Limited partners are protected from liability but are not allowed to participate in the management of the business. Profits are dispersed pursuant to an agreement between the partners.
Limited liability partnerships are used for professional business. The limited liability partnership protects each individual partner from the liabilities of another partner and that other partner's employees that are under their exclusive supervision or control. |
| Canadian Corporations |
In Canada, a corporation is in law a person with independent legal status. A corporation is owned by its shareholders. Because of the legal status of the corporation however, the shareholders are not responsible for the liabilities of the corporation. Corporations must be incorporated pursuant to the applicable statute in its jurisdiction, either provincial or federally. |
| Branches of Foreign Corporations |
In order to conduct business in Canada a foreign business can operate as a branch operation. The branch must be registered in Canada. |
