Choosing a Business Ownership Essay

Introduction

Venturing into the business world poses great challenges though it is much more promising than seeking to be employed. In general, you get the privilege to be your own boss which is a personal favorite advantage for many individuals who have dared to start their own businesses.

When one finally makes up his/her mind to start a business, he/she faces the task of choosing the type of business to venture into. Many factors will come into play at this point in time ranging from naming of the business to identifying the objectives of the business.

This paper seeks to look at the different types of businesses one can start in Canada all of which are mainly distinguished by the form of ownership i.e. sole proprietorship, partnership, corporations and cooperatives. Their advantages and disadvantages will also be covered.

Sole Proprietorship

This is the simplest of all the other types of businesses and is characterized by its form of ownership. It is basically one person business. The name by which it runs by can be derived from the owner’s name or otherwise, on condition that it does not contain any “legal designations of other forms of businesses such as Ltd. or Inc.” (Ward 1).

The following advantages are associated with the sole proprietorship business:

1. It is inexpensive and easy to manage especially when it comes to procedures for setting it up.
2. Does not need registration or “annual filings”- this however varies with the different provinces in Canada since requirements are not similar for instance in Ontario, registration of the business is essential every five years (Ward 1).
3. Tax simplicity i.e. personal income tax form is used to declare the business income (Ward 1).
4. You are your own boss i.e. even as the title suggests you get to make sole decisions and implement your own ideas (Ward 1).

The disadvantages mainly stem from the advantages and they are as follows:

1. Unlimited liability i.e. the owner bears all the liabilities and this could extend to his personal property (Ward 1).
2. Limited diversity in terms of the ideas to run and manage the business since he is the sole decision maker.
3. “Lack of tax flexibility” (Ward 1).
4. Challenges in the initial capital.

Partnerships

A partnership is a business with two or more people (no limit) involved as owners/partners. It is the alternative a prospective business owner would pursue if sole proprietorship is not suitable for him or her (Ward 2). In Canada, the most common type of partnership is the general partnership, others which can be formed depending on the province and the business details are: limited and unlimited liability partnerships.

The distinguishing factor among these three is the extent to which the partners can bear liabilities and also the type of partners. General partners all bear the same liability and are actively involved in management unlike in limited partnership. Limited liability partnership is mostly targeted to “groups of professionals who are governed by specific provincial legislation” (Ward 2) e.g. doctors, lawyers.

Advantages of Partnerships:

1. Liability is distributed among the partners.
2. Pooling of ideas from all the partners with various abilities enhances effective and efficient running of the business (Ward 2).
3. Tax simplicity similar to that of a sole proprietorship.

Disadvantages of Partnerships:

1. A mistake by one partner could affect all the other partners.
2. Dissolution of the partnership is complicated necessitating a partnership agreement that will act as a guideline (Ward 2).

Corporations and Cooperatives

If one is still dissatisfied by the two initial options especially due to liabilities, then corporations and cooperatives ought to be a more rewarding solution. A corporation/limited company is a “legal entity separate from its owners or shareholders” while a cooperative is a “legally incorporated business owned and controlled by its members” (Ward 3). For a corporation to function throughout Canada, it needs to register as a Federal Incorporation while if it just operates within a province then “Provincial Incorporation” would suffice (Ward 3).

The main advantage that makes both the Corporations and Cooperatives stand out among the types of businesses is that there is: Limited liability- meaning that liability is only determined by the shareholding of each member and thus personal assets are not at stake incase of debt or losses as compared to sole proprietorship.

Disadvantages of Corporations and Cooperatives

1. Complicated formation procedures especially when federal and provincial incorporations are required in the case of corporations while cooperatives are to adhere to the “Canada Cooperatives Act”.
2. More expensive to manage unlike the other two types of businesses.
3. Tax complexity for Corporations as they have to “file annual income tax returns with the Canada Customs and Revenue Agency” (Ward 3).

Conclusion

When one has gone through all the different types of businesses available, they are able to weigh the pros and cons for each and thus make an informed decision on what business ownership to pursue. Once formed, there may be developments in the business and there is always a provision for any alterations to be made along the way.

Work Cited

Ward, Susan. Choosing a form of Business Ownership. About, 20101. Web. <https://www.thebalancesmb.com/choosing-a-form-of-business-ownership-2947251>