One of the most important considerations when establishing a new company in Alberta is how to set it up properly. There are several options for business structures, including partnerships, proprietorships and corporations. In partnerships, liability is unlimited because each partner is personally responsible for business debts. The tax returns of each partner must include their personal and partnership incomes. It is also a good idea to consider the type of relationship that exists between partners to identify potential decision-making problems.
A sole proprietorship is another option, in which the owner is personally liable for the business debts. Advantages include low setup costs and no conflicts over decision-making. This option can have either tax advantages or disadvantages, depending on the profitability of the company.
When the choice is a corporation, setup expenses are typically high, but the corporation is an entity separate from the shareholders, and liable for debts. Shareholders cannot be sued in their private capacities for matters related to the corporation. Decision-making will involve shareholders’ votes, which could give rise to problems, but the most significant disadvantage might be the fact that shareholders are taxed two times — once at the business level and again on their personal returns.
These decisions require careful consideration as mistakes could have long-term consequences. The best approach is to utilize the skills of a lawyer with experience in dealing with Alberta business and commercial laws. Legal counsel can assess all the relevant circumstances and explain the available options along with the pros and cons of each, and then provide the necessary support and guidance throughout the ensuing administrative and legal proceedings.
