One of the many attractive features of living in BC is its vibrant business ecosystem. The province, renowned for its rich diversity, bountiful resources, and broad range of industries, is fertile ground for all business ventures.
Some of the strongest and most profitable sectors include:
- forestry and agriculture (BC is one of the world’s largest exporters of wood products);
- technology and innovation;
- renewable energy and cleantech;
- tourism and hospitality (worth an estimated $18.5 billion);
- mining and natural resources; and
- real estate and construction.
In each of these industries, countless entrepreneurs, innovators, and investors have thrived.
But BC’s economy is not without its share of challenges. Government debt, inflation, rising housing costs, and environmental issues have all deleteriously affected the province’s business. Additionally, BC (along with the rest of the country) is grappling with Trump’s 25% tariff on Canadian imports. This move has harmed several key sectors, including lumber and construction. While we have yet to see the full impact of the tariffs, the BC business community is resilient and intent on persevering through these difficult times.
Starting a Business in BC
If you’re looking to start a business in BC, you’re probably already familiar with the province’s business ecosystem. However, there are several other important factors to consider.
Once you’ve fleshed out your business idea, one of your next major decisions pertains to your choice of business structure. Three main business structures exist: sole proprietorship, partnership, and corporation. Each has distinct advantages and disadvantages. The right business structure depends on your goals, ability to tolerate risk, financial situation, and the unique features of the business you wish to launch.
What is liability?
One element that differentiates the three main business structures is liability. Liability refers to the debts and obligations that a person or company owes to another party. Liability is legally binding and generally involves the transfer of money or assets. Aspiring businesses should carefully consider who is liable in their business and what they are liable for.
In the following sections of this blog, we will describe the three main business structures and pay special attention to their liability implications.
The three main business structures in BC
Sole proprietorship
What is a sole proprietorship?
A sole proprietorship is an unincorporated business owned and operated by a single individual. It is often used by freelancers and small-scale entrepreneurs because it is fairly simple to establish and allows the sole proprietor to exercise full control over the business.
Liability in sole proprietorships
In a sole proprietorship, the owner is personally liable for all business debts and obligations. In this sense, sole proprietorships are risky insofar as the liability extends to the owner’s personal assets. If the sole proprietor winds up in debt, they might have to forfeit their car, house, or other belongings.
Example of liability in a sole proprietorship
Billy owns and operates Billy’s Beans, a small cafe in Salmon Arm. He is the sole proprietor. Unfortunately, this past winter, he’d just finished mopping the floor when an elderly customer slipped and fell and sustained a serious injury. The customer sued Billy for $25,000 in damages. Due to Billy’s status as a sole proprietor, he was personally liable for the damages and his assets could have been required to satisfy the judgment.
Partnership
Two or more owners come together in a partnership to operate a business. This business structure allows the owners to combine and benefit from each other’s skills and resources. Law firms, medical practices, and other professional organizations often favour partnerships.
The partners are all responsible for the business’s profits and losses within the partnership.
There are two main types of partnerships: general and limited. In a general partnership, all partners are equally responsible for managing the business and are personally liable for its debts and obligations. By contrast, there are both general and limited partners in a limited partnership. The general partners (like sole proprietors) are responsible for the business’s debts and obligations. In contrast, the limited partners are only liable for the amount that they’ve invested in the partnership.
Example of partnership liability
Chang & Chang Ltd. is a new Salmon Arm accounting firm owned and operated as a partnership by the Chang brothers. Mike Chang is a general partner, and Steve Chang is a limited partner.
When tax season rolled around this year, Billy hired the firm to prepare and file his taxes.
However, the firm made some major accounting errors. Billy sued them for $10,000 and won. As a result, Mike was liable for Billy’s damages, and his personal assets were at risk, whereas Steve’s liability was limited to the amount of his contribution to the partnership.
Corporation
The last of the three main business structures in BC is the corporation. A corporation is separate and distinct from its owners (i.e., the shareholders). The corporation itself can act “as a person” by entering into contracts, suing and being sued, and owning assets and property.
A key characteristic of corporations is that they are responsible for their own debts and obligations. The owners/shareholders and directors are not personally liable for their stake in the company.
Example of corporate liability
When Billy’s not brewing, he enjoys mountain biking on the spectacular trails around Salmon Arm. One day, Billy was riding when he hit a bump, and his bike frame suddenly cracked. He landed on the ground and broke his wrist. Billy sued the corporation that manufactured his faulty bike and was held legally liable for damages associated with Billy’s injury.
Choosing a Business Structure in BC
In summary, if you’re starting any kind of business, you should have a solid understanding of the available business structures in BC so you can assess their pros and cons. Knowing whether and to what extent you will be liable for the business’s debts and obligations is a crucial consideration.
The business landscape in BC presents both exciting opportunities and significant challenges. But armed with accurate, up-to-date information, you will increase your chances of succeeding in whatever venture you choose.
Contact CM Lawyers for Advice on Starting a Business in Vernon & Salmon Arm
At CM Lawyers, we know that selecting the right business structure is crucial to laying the proper foundation for your venture. Our firm understands the nuances of incorporation, sole proprietorships, and partnerships. We will advise you on the liabilities associated with each business structure, as well as tax implications and compliance requirements. Armed with this information, your business will be poised for continued success and growth.
With convenient office locations in Vernon and Salmon Arm, CM Lawyers proudly serves clients throughout the surrounding communities, including Northern Okanagan and Shuswap. To discuss your business law matter with our team, please contact us online or call our Vernon office at (250) 308-0338 or our Salmon Arm office at (250) 803-9171.