Business law allows flexibility in choosing a structure

Entrepreneurs here in Alberta and across the country have several decisions to make as they get ready to open their doors. One of the most essential is the type of business structure under which they will operate. Fortunately, business law allows flexibility in this area since a company can change its structure when necessary.

For example, if an entrepreneur starts out on his or her own, it would probably be more advantageous to choose to operate under a trade name. This is an unincorporated business owned by one person or entity also referred to as a sole proprietorship. Since the law does not distinguish between the business and its owner, he or she takes full responsibility for the good and the bad, including liability, profits and losses, and decision-making, among other things. The entrepreneur must weigh the potential tax and financial benefits of a proprietorship against the potential risks of the business and assuming personal liability if something goes wrong. Whether it is a negligent act or omission, or the debts of the business, a proprietor will be solely and personally liable for the costs that arise. 

When more than one person is involved in the business, it may take the form of a partnership or a corporation. Each entity structure has its own advantages and disadvantages. In a partnership, the owners retain full liability and operate similarly to a sole proprietorship. On the other hand, a corporation provides owners protection from liability, among other things. However, there is a potential limited partnership structure in which many of the benefits of sole proprietorship are retained, but the potential risks and liability are more limited as would occur with a corporation. As a business grows or gets smaller, the structure can change to accommodate the needs of the owner or owners.

Choosing one structure over another depends on a large number of factors, and ultimately depends on the entrepreneur’s personal circumstances, including type of business or industry, and personal risk tolerance. Making the right choice could seem daunting, but with the flexibility allowed under business law, an initial decision can be changed as time passes and it becomes clear that the business requires a different entity form. Even so, Alberta entrepreneurs want to make sure that they start their businesses off on the best course possible, so it would be worthwhile to explore every option and choose a structure that will help the business thrive from day one.

Related Posts: Considerations in looking to buy an existing businessBusiness law issues: What to name a new companyADR in Alberta: How negotiation, mediation, and arbitration work Business law matters: Negotiating a commercial lease

Posted in