Small businesses make up a large portion of Kelowna’s business market, and that trend doesn’t seem to be stopping. If you are considering starting a business or expanding your existing business, here are a few details to consider and discuss with your lawyer and accountant.
Sole Proprietorship vs. Corporation
Taking into account the unique circumstances of your business, it is important to decide on a business structure. The most common structures are sole proprietorships, partnerships and corporations. A sole proprietorship can be used when you operate the business alone, whereas a partnership is when you are in business with one or more people. Operating as a sole proprietorship is usually considered the simpler, less expensive route, with all profits going to the owner. However, the disadvantage to this is that you become personally responsible for all the debt and obligations of the business. In addition, the business name can be registered, but registration does not provide protection from other businesses using the same or similar names.
Alternatively, a corporation is considered a separate legal entity, with the liability of the shareholders limited to the subscribed share capital of the corporation. There are possible tax advantages, and ownership can be transferrable as its continuation is not dependant on its individual directors and shareholders. The name of the corporation is also registered in the BC Corporate Registry, which provides protection to the name within British Columbia. Incorporating can be a more expensive process, with more regulation and requirement under the Business Corporation Act, yet this may be the preferred structure for your growing business, if recommended by your tax advisor and lawyer.
Choosing a Name
If you choose to incorporate, some thought will need to go into deciding on a name for your corporation, unless you plan to operate under a numbered company, which is made up of your incorporation number followed by “B.C. Ltd.”. The name must include a ‘distinctive element’, a ‘descriptive element’ and a ‘corporate designation’. The distinctive element can be a personal name, a geographical location, or coined name that acts to distinguish you from other companies. The descriptive element usually outlines the nature of the business of the company e.g. ‘ florist’ or ‘auto repair’. The corporate designation is either: Limited, Ltd., Incorporated, Inc., Corporation or Corp.
Once you have decided on some possible options for your company name, it is helpful to research your desired name with BC Registry Services to check for availability. The registry requires that, unless you will be using a numbered company, a name reservation be submitted for approval prior to incorporation. This is to avoid similar companies with similar names, and provide protection of the incorporated company’s name.
It is important to know that although the registry provides protection, registration does not provide the company with a proprietary interest in the name. The corporate name register also does not include registered business names, trademarks, trade names, or the names of corporations that are not registered in B.C. For this reason, it can be advisable to check the NUANS database, as it includes registered trademarks, along with corporate names and business names registered in Canada. Note that the rights of trademarks or trade names take priority over registered names.
Share Structure
Shareholders are the owners of the company, and the shares they own represent their rights in the company: if they have control, if they benefit from profits, if they can sell their shares, and if they have right to the corporation’s equity. When selecting a share structure it is important to consider what may be required currently, but also with future growth. As mentioned above, this is an area that greatly benefits from an accountants tax advice. The authorized share structure decided on is established on incorporation and is described in the company’s notice of articles. The more detailed rights can usually be outlined in the articles of the company under the special rights and restrictions section.
With careful consideration and consultation with your accountant, tax advisor and lawyer you can set up your business to work for your situation both now and in the future.
The information provided above is for educational purposes only. This information is not intended to replace the advice of a lawyer or address specific situations. Your personal situation should be discussed with a lawyer. If you have any questions or concerns, contact a legal professional.