Issue link: https://digital.canadianlawyermag.com/i/51540
FORMS OF BUSINESS ORGANIZATION By Christine Pound B usinesses in Atlantic Canada can operate through a variety of legal entities, including companies, sole proprietorships, partner- ships and limited partnerships. Incorporation Each province in Atlantic Canada has its own companies legislation: the Business Corporations Act (NBBCA) in New Brunswick; the Companies Act (PEICA) in Prince Edward Island; the Companies Act (NSCA) in Nova Scotia; and the Corporations Act (NLCA) in Newfoundland and Labrador. Compan- ies may be incorporated under one of the provincial companies statutes or federally under the Canada Business Corporations Act (CBCA). The NBBCA and the NLCA are both CBCA-style statutes. Compan- ies in NB and NL are formed by way of articles of incorporation; a company in Nova Scotia is formed by way of memorandum of association and articles of association; a company in PE is formed by way of letters patent. Many jurisdictions, including federally and in NL, require a minimum number of directors to be Can- adian residents. NB, PE and NS do not have any resi- dency requirements for directors. Corporations which are validly incorporated and existing in one Canadian jurisdiction (including a fed- eral incorporation) may register to carry on business in other Canadian jurisdictions. An "unlimited liability" company (NSULC), which has certain U.S. tax advantages, can be incorporated under the NSCA. Under the NSCA, shareholders have no direct liability to creditors of the NSULC; rather, liability arises on the winding up of the NSULC. For the shareholders to be liable, creditors must establish a claim against the NSULC and the NSULC must not be able to satisfy the claim. Only at that point may the creditors pursue shareholders of the NSULC by wind- ing up the NSULC and claiming a deficiency. Recent changes to the NSCA removed the require- ment for court approval for amalgamations and other corporate steps and also added express permission for financial assistance. In NL, an entity (limited partnership, partnership or corporation) needs to be approved by one of the two Innu or Inuit registries to be classified as Innu or 4 SPRING 2011 DOING BUSINESS IN ATLANTIC CANADA Inuit businesses respectively for purposes of Impact and Benefit Agreements on major Labrador projects. Innu or Inuit businesses obtain preferential access to work; and partnerships between aboriginal parties and non-aboriginal entities can still fulfill the require- ment if properly structured. Sole proprietorship A sole proprietorship is the simplest form of business enterprise. It consists of an individual who owns and operates a business. The owner/operator personally owns all of the assets and all obligations of the busi- ness are personal obligations of the sole proprietor. The assets of the sole proprietor may be used to settle any outstanding debts of the business. One benefit of operating through a proprietorship is the low cost of organization. If start-up losses are expected, then sole proprietorship may offer the additional advantage of allowing the owner to claim those losses as a deduc- tion for income tax purposes against other sources of income. Some of the Atlantic provinces require sole pro- prietorships carrying on business under a name other than that of the proprietor to register that business name.