Business Basic for Engineers by Mike Volker

CREATING A BUSINESS

Contact: Mike Volker, Tel:(604)644-1926, Fax:(604)925-5006
Email: mike@risktaker.com

Intro

Quote! Starting a Business Legal Form of Business What legal form should my business take? There are a number of legal formats for starting up a business. However, in the simplest terms there are only two formats: Incorporated and Unincorporated. In the case of an unincorporated business, you as a person are synonomous with the business. It's like having a bank account that you own except that you now own the accounts of the business you've started. All you have to do is to "hang out your shingle", i.e. come up with a business name, register it with your local government (to get tax numbers and any necessary business licences) and start transacting business. Usually this form of business is referred to as a Sole Proprietorship. It is the simplest and least expensive format. You, as the owner, receive all the profits and you assume and accept all the risks personally. Normally, to start a sole proprietorship, all you need to do is to regiter the name of your business with the provincial government. A General partnership is an extension of the sole proprietorship and is similar to a sole proprietorship except that there is more than one person involved. In this case, a partnership agreement spells out the sharing of risks and rewards among the parties. This is an arbitrarily determined legal partnership. Limited Partnerships may be formed when several people wish to invest in a business but do not necessarily want to run or manage (or take on risks associated with) the business. In this case, limited partners are liable for debts only to the extend of their original contributions of capital. In terms of what you need to do, i.e. licenses, tax numbers, name registrations, etc - the best bet is to check with a business advisory service (e.g. a law firm, government office, etc) because the requirements will depend on where you do business and perhaps what kind of business it is. Requirements will vary from City to City and Province (or State) to Province (or State). When you incorporate a company you are creating a taxpayer, i.e. a new legal "body". In essence, that's all you are doing. It is this body you've created which now has liabilities, assets, obligations and so forth - not you. You only own it. Incorporation is the preferred vehicle for most companies - especially when several investors or founders are involved and especially if the aspirations of the owners are such that significant growth (and risks) are mandated. Other, more subtle forms of business format, entail Joint Ventures, Franchising, Dealerships, or Licensing arrangements. However, in each case it will be either you personally (or a company which you incorporate) which becomes the participant in one of these alternate forms. In a Joint Venture arrangement, you work with another company and an agreement between the parties spells out the obligations and rewards of the participants. This format might apply if you take your idea to a larger, established company and you access their capital and talent and you supply your ideas or designs. Instead of starting a business from scratch, you can buy a Franchise - i.e. the right to use an established business name and model in a particular geographical area (e.g. a restaurant). This eliminates many of the start-up risks, but will require you to make up front payments to the franchisor and will require you to work within the guidelines of said franchisor. When operating a dealership, you act as an agent for other companies - selling their products under your name or in your store. Dealerships can be incorporated or unicorporated. An often unconsidered option for the entrepreneur is that of a Licensing Agreement. In this case, you would license another company to take your innovation or idea to market in exchange for a fee or a royalty stream. This is an ideal option if you are not interested in running a business or if you plan to have a one-shot wonder. Why go through all the rigours of owning and running a business when you can piggy-back onto an already established venture. There are many companies who need your product! Think about this as a viable option. Think of it this way - it is a lot less risky to get 5% off the top (i.e. 5% on someone else's sales) than it is to try to generate a 5% bottom line (and worry about all the expenses in between!).

Contents

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  1. Key Points

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    Copyright 1996, 97 Michael C. Volker