Starting a Business in Alberta: Step One – Basic Structure

What structure should your new business be? There are a few basic options:

1) Sole Proprietorship in Alberta – In this simplest of structures there is no legal separation
between you and your business. You are the business. You receive income and
file your taxes the same, with only a few additional schedules. This is appropriate
for start-ups unsure of potential sales volumes, or those operating the business on
a part-time basis. If you choose to use a Trade Name, you will want to search it
for availability and then register it. This structure benefits from the lowest start up
cost. All business income or loss is reported on your personal tax return, and you are
personally liable for the losses of the proprietorship.

2) Partnership in Alberta– In this structure, two or more people come together, with or without
a formal agreement, and share the profits or losses according to their agreement.
The partners report their share of profit or loss on their own personal tax returns. In
almost all cases, registration of a Trade Name is desirable. Generally, a partner is
legally liable for the actions or inactions of his partner with respect to the business.
Because of potential liability issues, I do not usually recommend this structure, but
it is appropriate for some businesses. If you are seriously considering this structure,
legal advice is strongly recommended.

3) Corporation in Alberta – This is a more formal business structure for one or more entities. A
corporation is a legal entity, similar to a person. The shareholders’ (owners) financial
liability is limited to the value of their investment (with a few special exceptions).
If the corporation goes broke, your personal assets are secure (unless you’ve made
personal guarantees for the corporation, or unless you’ve acted illegally). There
is significant flexibility in what a corporation can do with its profits and if or how
those profits are split to shareholders. One general drawback is the cost of increased
reporting requirements, including registration & tax returns. Often, a business will
start out as either a sole proprietorship or a partnership and later transition into a
corporation, although many begin as a corporation.

Once you have selected a business structure, you will then be able to take the steps required
to form it. It is a good idea to consult with a legal and an accounting professional before
proceeding further. Most professionals will offer a free consultation session. Your next step will
be determining if GST registration is required.

by Jefferson Vinall

email: vcs1@shaw.ca
VCS Corporate Services
www.vcscorporate.ca
Mailing Address:
PO Box 23028,
RPO Citadel,
St. Albert, AB,
T8N 6Z9
Cell: 780-695-4644
Fax: 780-569-1200

or learn more about Jefferson here.

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