When starting a business, you need to decide what legal structure it will have. This decision is not to be taken lightly, as it will have a major impact on the way you manage your company and your finances. Generally, it’s a good idea to make a choice that maximizes your tax benefits.
In this article, the experts at T2inc offer advice on how to choose the right legal structure for your business.
The most common business structures
In Quebec, there are several different types of business structures you can choose from when starting a company. The three most common structures are corporations, partnerships and sole proprietorships.
Here’s a quick overview.
Corporations
A corporation is a type of legal business structure that has unique tax advantages. Since a corporation is formed by filing a declaration of registration of a legal person, it becomes independent from its shareholders and management to a certain extent.
Because it is a separate legal entity, the corporation itself is responsible for paying taxes and other obligations. The shareholders do not own the company proper, but own shares in it.
Partnerships
A partnership is a group of people who create a business together. The partners pool their property, resources and knowledge to carry out their business. The profits made and losses incurred by the company are divided between the partners.
Sole proprietorships
A sole proprietorship is essentially someone who is self-employed. The individual assumes all of the responsibilities and obligations related to the business. They receive all of the profits, but also incur any losses that may occur.
Factors to consider when choosing your business structure
Choosing your legal structure when you first start your business requires careful consideration about the way you want to operate. Asking yourself the following questions will help you make your choice.
Do you have business partners?
Are you starting a business by yourself or collaborating with others?
If you have business partners, you’ll need to choose a corporation or a partnership. Ultimately, your choice will depend on how you want to run your business and the values you share.
If you’re working alone, you’ll need to choose a corporation or a sole proprietorship.
What is your financial situation?
It’s also important to consider the financial resources you have at your disposal when choosing a legal structure for your business. A corporation is more expensive to create and operate than a partnership or sole proprietorship, but it has several advantages with respect to research and financing. Your financial situation may therefore be a determining factor in your final choice.
What size will your company be?
Some business structures are more appropriate for companies of a particular size. For example, a corporation is often the most appropriate form for serious businesspeople, as it allows for more efficient growth management. High revenue businesses also benefit from the tax advantages of the corporate structure.
Get more corporate tax advice from T2inc
There are many factors to take into consideration when deciding on a legal structure for your new business. It’s important to properly assess your options in order to choose the structure that will maximize your tax benefits.
Need more advice about corporate tax in Quebec? Contact the experts at T2inc today for personalized support!
Frédéric Roy-Gobeil
CPA, M. TAX
As President of T2inc.ca and an entrepreneur at heart, I have founded many start-ups such as delve Labs and T2inc.ca. A former tax specialist at Ernst & Young, I am also a member of the Ordre des comptables professionnels agréés CPA and have a master's degree in taxation from the Université de Sherbrooke. With a passion for the world of entrepreneurship and the growth mindset, I have authored numerous articles and videos on the industry and the business world, as well as on accounting, taxation, financial statements and financial independence.
