Starting a Business: Choosing the Right Legal Structure

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Having a business plan is a great start. But it’s another thing to convert this into a viable business that will last for many years. To improve the odds of success, it’s important to start by choosing the legal structure most suitable for your project.

Some questions before getting started

An entrepreneur who decides to start a business in Quebec must consider many questions before getting started. What legal structures can be used? What are the main advantages and disadvantages of each structure? Should the business be operated on a personal basis or is incorporation better? What exactly does it mean to incorporate?

The legal structure chosen will directly affect the operation and management of the business. The entrepreneur should therefore choose the structure best suited to them personally and to the nature of the business.

Various Legal Structures

There are several legal structures for doing business in Quebec. They are also referred to as the legal “forms” or legal “vehicles”.

Here are the most common legal structures used for profit-making and non-profit organizations:

Selecting the Right Business Structure

Among the types list above, the most common structures are sole proprietorship, general partnership and a company.

To pick the most suitable structure, the entrepreneur must consider several factors:

⦁ Will there be other business partners?

  • An entrepreneur who wants to operate the business alone has to choose between a sole proprietorship and creating a business corporation.
  • If 2 or more entrepreneurs will operate the business together, they must decide between a general partnership and a business corporation.

⦁ Financial Resources:

  • A business corporation is generally more expensive to set up and run than a sole proprietorship or a general partnership.

⦁ Size of the Business:

  • A business corporation is more complicated to operate than a sole proprietorship or a general partnership. But if the business is big, it can be more efficient to manage it as a business corporation.
  • Also, when a business earns a lot of money, the business corporation structure gives an entrepreneur better protection against financial risks and better tax advantages.

There are also other factors that will influence the choice of legal structure. It is important to find out about them before getting going.

And remember that it is important to identify the main advantages and disadvantages of setting up as a sole proprietorship, general partnership or business corporation.

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