varies across different legal forms of business. Below we illustrate how profits and losses are treated within different business forms.
A sole proprietorship is owned by one person. The firm and its owner are treated interchangeably – the owner is the only beneficiary of any profits and is personally responsible for any losses and debts. Most sole proprietorships are small, but entrepreneur Jim Pattison has operated Jim Pattison Group for over 60 years.
In a partnership, two or more partners jointly own the firm. A successful partnership requires trust because profits and losses are shared and because each partner is accountable for the actions of others. Partnerships are a common business form for dental practices and law offices.
A corporation such as WestJet Airlines separates ownership and management by issuing ownership shares that are publicly traded in stock markets. Shareholders do not directly receive profits or absorb losses, but profits and losses tend to be reflected in whether the firm’s stock price rises Or falls. Shareholders can also benefit from profits in the form of dividends. A disadvantage of this business form is double taxation: taxes are paid on corporate profits and on any dividends that corporate income fuels.
A limited liability company (LLC) can be thought of as a hybrid of a corporation and a partnership. Like in a corporation, owners are not accountable for the firms debts. A winner of a legal judgment against an LLC, for example, cannot claim the personal assets of the LLC’s owners. LLCs also enjoy the management flexibility of partnerships. For federal tax purposes, an LLC must choose to be treated as a corporation, a partnership, or a sole proprietorship.
Most sole proprietorships are small businesses, often with no employees at the beginning. Small businesses (up to 99 employees) contribute approximately 30% of Canada’s GDP.
Source: Industry Canada. (2013, Sept. 13). SME Research and Statistics, Key Small Business Statistics – August 2013. Retrieved from : http://www.ic.gc.ca/eic/site/061.nsf/eng/02812.html
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