Ready ka na ba?
by Alona C. Mercado
I must admit that, just like everyone else, I have also dreamed about one day winning the lottery and retiring in luxury. Lahat naman tayo nangagarap di ba?
However, after our brief flight of fantasy has passed, we must deal with the reality of making a living and saving for our retirement. The future is uncertain and we don’t know if there will be a downturn in the economy that will reduce the value of our current retirement savings or if the current Canada Pension Plan (CPP) and Old Age Security (OAS) system will still be around when it’s our turn to retire. So, what do we do?
Planning for our retirement is very important. Whether it’s through individual means such as an RRSP or TFSA or if it means finding a good job with a company that provides a pension to its employees. Regardless of which option you wish to pursue, the root of a good retirement is having a good job or career at the present time.
The next questions become, “Do you like your career?” “Are you in a dead-end job?” “Could you be making more money elsewhere?” “Are you willing to take the risk?” Every now and then, we have to take a moment to evaluate our situation to answer these questions. I have many clients who come to see me after they have taken the time to self-reflect and have made a big decision. Some want to consult regarding their existing employment contract and what their rights and restrictions would be if they left their employer. Others want to discuss how they can start up their own business or buy an existing business.
If becoming your own boss is your dream, do you know where to start? The first question you have to ask yourself is, “What type of business do you want to have?” Once you have made that decision, you then need to determine how you want to legally structure your business.
There are three general types of legal entities a business can take – sole-proprietorship, partnership or corporation. Each type has its own advantages and disadvantages. This article will briefly touch upon each one.
A sole proprietor is a business that is owned and operated by one person. You are taxed on your personal income and your business has no legal identity separate from yourself. Also, if the business is sued your personal assets are not protected against any damages awarded against you. Consider for example that you own a renovation company and you are sued. If the court rules against you for an amount valued greater than the value of your business assets, the court will allow your personal assets (such as your home and car) to be used to pay the damages. Although a sole proprietorship is easy and inexpensive to set up, the law considers the owner and the business to be one entity for tax purposes. Consequently, the owner’s personal assets are not protected from potential court damages.
A partnership is the second type of legal entity. A partnership can be made up of two or more individuals who agree to go into business together. The partnership, just like a sole proprietorship, is not a separate legal entity from the owners. Each partner is taxed personally for the profits or losses of the partnership. Each partner is also personally liable for any damages resulting from the partnership. When setting up a partnership, it is advisable for the partners to enter into a comprehensive partnership agreement.
The third type of legal entity for a business is a corporation. A corporation is considered a separate legal entity from its owners (who are called shareholders). As a separate legal entity, the corporation is considered separate from its shareholders for tax purposes and for liability purposes. A corporation is the legal entity that will protect its shareholders the most. However, it is also the most expensive to set up. The corporation will need to be created and corporate documents will need to be drawn up.
If you are seriously considering setting up a business, you should talk to a lawyer to discuss the pros and cons about each type of business entity available. The general information in this article is a good starting point but each person’s situation is unique. So before you commit to such a huge step, make sure you are ready. Take the time to consult with a variety of people such as a business advisor, an employment councillor, your financial advisor, your lawyer and your family. The key to a successful transition from being an employee to an employer is to have a full and complete business plan.
After learning about the different types of structures your business can take, you then have to ask yourself, “Am I ready to take that leap of faith?” Ready ka na ba? Ano ang isasagot mo? Mayroon magsasabi na bahala na ang Diyos. Mayroon magsasabi na bahala na si Batman.
Ang payo ko sa inyong lahat, eh, maniwala kayo sa sarili ninyong abilidad, pag-aralan ninyong mabuti ang lahat ng kailangan ninyong malaman, at gumawa kayo ng magandang business at marketing plan para handa kayo sa ano man ang mangyayari.
The contents of this article are not intended as legal advice and is for information purposes only. Should you require legal advice on a specific issue relating to the contents of this article, please seek the services of a legal professional.
Atty. Alona C. Mercado is a lawyer practicing in Winnipeg. She was called to the Manitoba Bar in 1999. Her preferred areas of practice include wills and estates, committees, real estate and immigration law.