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Setting Up Your Business

A business is an activity that you conduct for a profit or with a reasonable expectation of profit. For GST/HST purposes there is no requirement to have a reasonable expectation of profit. There are three types of business; sole proprietorships, partnerships and corporations. They way your business is taxed has a lot to with the way your business is set up.

A sole proprietorship is an unincorporated business that is owned by one person. It's the simplest kind of business structure.

The owner of a sole proprietorship has sole responsibility for making decisions, receives all the profits, claims all losses, and does not have separate legal status from the business.

If you are a sole proprietor, you pay personal income tax on all revenue generated by the business. You also assume al the risk of the busine4ss. This reisk extends even to your personal property and assets.

As a sole proprietor, you have to register for the goods and service tax/ harmonizes sales tax if your world wide annual taxable revenues are more than $30,000.

It is easy to set up a sole proprietorship. Simply operate as an infividual aor as a registered, unincorporated business. If you operate as an individual, just bill your customers or clients in your own name. If you operate under a registered business name, bill your clients and customers in the business name. If your business has a name other than your own, you will need a separate bank account to process cheques payable to your business. You will also need to do a name search and register your business with the Minister of Finance for a cost of $60.

A partnership is an association or relationship between two or more individuals, corporations, trust, or partnerships who join together to carry on trade or business.

Each partner contributes money, labour, property, or skills to the partnership. In return, each partner is entitled to a share of the profits or losses in the business based on each partner's interest in the partnership. The business profits or losses are usually divided among the partners base on the partnerships agreement.

Like a sole proprietorship, a partnership is easy to form In fact, a simple verbal agreement is enough to form a partnership. But if money and property are at stake, you should have a written agreement.

The partnership is bound by the actions of any member of the partnership, as long as these are within the usual scope of the operations.

A corporation is a separate legal entity. It can enter into contracts and own property in its own name, separately and distinctly from its owners.

Since a corporation has a separate legal existence, it has to pay tax on its income, and therefore must file its own income tax return. It must also register for the GST/HST if its taxable worldwide sales are greater than 30,000 taking into account associated companies.

You can set up a corporation by filing out an article of incorporation, and filing it with the appropriate provincial or federal authorities.