Business Types – Corporation

You and your companyThere are three ways you can organize a business – a proprietorship, a partnership or a corporation. In this blog we will do our best to explain a corporation.

A corporation is a separate legal entity from the owner. A corporation is sort of like a separate person in the eyes of the law.

A corporation has to be created or incorporated before it can begin business. Incorporation in Alberta is done by submitting the required paperwork to the Province of Alberta through a registry office. The province in turn creates or incorporates the corporation with the words Limited (Ltd) or Incorporated (Inc) at the end of its name. So when you see Ltd or Inc at the end of a business name you know it is a corporation rather than a proprietorship or a partnership.

The owner(s) of a corporation are called shareholder(s). And, although the owner or owners operate the business they do so in the name of the corporation.

The corporation
– Would buy the equipment and supplies it needs to operate (even if it used the owner’s money to do so)
– Would hire and pay employees
– Would earn any profits
– Would have to file its own tax return and pay its own taxes
– Would choose its year end based on different parameters than a proprietor or a partnership

So, a corporation is a separate legal entity, created by the province and that enjoys the fruits of its own labor (or the labor of its owner and/or employees). The owner benefits by the corporation paying him or her a salary or dividends.

To confuse things a bit, shareholders of a corporation (when there are 2 or more shareholders) often call themselves partners. But shareholders are not partners in a technical sense and ought to call themselves “fellow shareholders” not partners.

We will be doing a blog on the advantages and disadvantages of proprietorships, corporations and partnerships but if you would like to find out which way of doing business is best for you please give us a call. We would be glad to sit down with you to discuss your plans and determine which method of organizing your business would be best for you

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