A sole proprietorship exists whenever an individual carries on business on his or her own without using any other form of business organization (for example a corporation) and without involving the participation of other individuals, except perhaps as employees. The proprietor is the sole owner of the business. He or she gets all the benefits (and profits) from the business. However, all the obligations flowing from the business are also the proprietor's responsibility (such as losses and asset depreciation). In addition, the proprietor is personally responsible for carrying out all contractual obligations relating to the business and may be liable in tort for the acts of the sole proprietor and his or her employees for whom he or she is responsible.

In some circumstances it will be necessary for a sole proprietor to obtain a licence to carry on business and any business name used may require registration.


Partnership

When two or more persons, whether individuals or corporations (a corporation may be a 'legal person') carry on business together with a view to profit, the relationship is called a partnership and the members of the partnership are called partners. There are two types of partnerships: (1) general partnerships and (2) limited partnerships. There are several distinguishing elements between general and limited partnerships; however, the most important distinction is the scope of liability of each partner. In addition, each form of partnership has specific tax consequences which should be thoroughly evaluated before one makes the decision to enter into this form of business relationship.


Co-ownership

Co-ownership occurs where two or more persons own property jointly. Each co-owner remains free to deal separately with his or her interest in the property, unless he or she has limited the freedom to do so by contract with the other co-owners. If co-owners hold the property with the intention of using it as an investment and intend to sell the property at some point in the future for a profit, then the co-owners may be viewed as partners in a business carried on for profit. There are significant ownership, agency and tax issues which should be addressed when entering into a co-ownership agreement.


Corporations

A corporation is a legal entity (or a 'legal person') separate in law from its owners, the shareholders of a corporation. In order to obtain shares in the corporation, the shareholders provide the corporation with money, property or services which then belong to the corporation. The shareholders are said to have limited liability because their liability in connection with the property of business owned by the corporation is limited to the value of the assets they have transferred to the corporation in exchange for shares in the corporation. For instance, creditor cannot demand that the balance of unpaid liabilities of the corporation be paid by the owners of the shares of the corporation. There are of course exceptions to this statement, for example, the shareholders may have guaranteed to pay the corporation's debts to its creditors.

Some of the benefits of corporations include the advantages of estate planning, limited liability, and the ability of perpetual existence.


Joint Ventures

Joint Ventures may take the form of a partnership, limited partnership, corporation, co-ownership or may be an association of two or more persons for a limited purpose without the participants becoming partners. Often joint ventures involve a combination of resources by two or more persons in order to conduct a commercial venture jointly under agreed rules.

It is desirable to have a written agreement between members of a joint venture so that everyone knows the rules. The agreement should include: the nature of the commercial activity; the contribution of each joint-venturer; the division of profits and losses; how profits and losses are to be obtained; the ability to veto any action; provisions for deadlocked votes; restrictions of transfers of each joint-venture's interest; and discussion of what acts require the consent of other joint-venturers.


Franchises and Licences

Franchises and licences are methods of transferring information, industrial or intellectual property rights from one person to another to enable the person receiving the information to engage in a certain business activity. The franchisee's business usually makes extensive use of the franchisor's know-how, expertise, trade mark and or trade name and is supplied with goods and services. In exchange, the franchisor receives an interest in the franchisee's business and enjoys a compensation in the form of fees and lease payments. Franchisees and licencsees are independent contractors, not employees.


Selecting the best method for your business

There is no best method for every business. You must consider which method of carrying on business is the most appropriate for your type of business. In conducting this analysis it is essential to have the advice of a lawyer. When discussing your business with a lawyer, keep in mind the following: what is legally possible; are you seeking to make a profit or is your business non-profit; limited liability; the desirability of perpetual existence; estate planning issues; your relationship with co-owners or proposed proprietors; borrowing requirements; employees; costs; time; citizenship requirements; flexibility of structure; and tax consequences.

Good Luck!