doing business in canada - Davies Ward Phillips & Vineberg LLP

parties. In Québec, joint venturers should also file the proper declaration under An Act respecting the legalpublicity of sole proprietorships, partnerships and legal persons to avoid being characterized as a generalpartnership, in which case each partner would be fully liable for partnership obligations and subject to tax as apartner, rather than as a joint venturer.TRUSTSAlthough it has always been possible to use a trust as a form of business organization, only recently has theincome trust become a relatively common form of public offering in Canada. The primary reason for employinga trust rather than a corporate structure is to realize greater tax efficiencies for investors than would bepossible by distributing corporate earnings to shareholders by way of dividends. In most cases, the trust is notitself the operating business entity. However, recent tax changes have reduced the tax advantages of a truststructure: see the Tax Considerations section of this guide.A trust is not a separate legal entity. In law, its assets are held by the trustees, who are also liable for obligationsincurred in carrying on its activities (although the trustees are entitled to be indemnified out of the trust assetsfor such liabilities). Unlike shareholders of a corporation, investors in a trust have not had the benefit ofstatutory limited liability. There has therefore been some concern that in certain circumstances it might bepossible for investors to be exposed to liabilities arising from the operations of the trust. Ontario has passedlegislation clarifying that investors in a publicly-traded trust (that is formed under Ontario law and that files itspublic disclosure documents under Ontario securities laws) will not incur such liabilities as beneficiaries of thetrust.SOLE PROPRIETORSHIPSA business owned by one person is called a sole proprietorship. This is the simplest form of businessorganization. The individual is responsible for all the obligations of the business. Accordingly, his or her personalassets are at risk if these obligations are not met.There is no legislation dealing specifically with sole proprietorships; however, a sole proprietor may need tocomply with federal, provincial and municipal regulations affecting trade and commerce, licensing andregistration. For example, in Ontario, a sole proprietor who carries on business or identifies his or her businessto the public under a name other than his or her own name must register the name under the Business NamesAct. In Québec, every person who uses a name or designation other than his or her own complete name mustregister a declaration under An Act respecting the legal publicity of sole proprietorships, partnerships and legalpersons.A sole proprietorship may be suitable for a small enterprise because it avoids many of the costs of setting upand running a corporation and the complex regulatory scheme that governs corporations. Non-capital start-uplosses of the business are generally deductible against the sole proprietor’s income from other sources. Thedisadvantages of a sole proprietorship are the unlimited liability of the owner and that the business can betransferred only by selling the assets.CONTRACTUAL ARRANGEMENTSFRANCHISINGA franchise is an agreement whereby one party, the franchisor, gives another, the franchisee, the right to makeuse of a trade-mark or trade name within a certain territory.Types of Business Organization 23