Regulatory and Legal Issues When Starting Up

• Author: Michelle Roy McSpurren/Rosemary Bocska
• Pages: 33-65

3

Regulatory and Legal

Issues When Starting Up

Learning Outcomes

After completing this chapter, you should be able to:

• Understand different methods available for

conducting business as a paralegal in Ontario,

including in the form of a sole proprietorship, a

general partnership, a limited liability partnership,

and a professional corporation.

• Explain the advantages and disadvantages of

operating a sole proprietorship and of conducting

business in partnership.

• Describe the difference between a limited liability

partnership and a general partnership, and a

partnership and an association.

• Explain the advantages and disadvantages of

conducting business as part of a professional

corporation.

• Identify when registration of a business name is

nec essar y.

• Identify the various licences a business may require.

• Explain the advantages and disadvantages of home

offices.

• Understand the importance of insurance for

paralegals and know what type of insurance is

mandatory.

33

Business Forms ......................... 34

Sole Proprietorship ..................... 34

Partnership ........................... 40

Corporation .......................... 43

Multi-Discipline Practices ................ 46

Associations/Affiliations ................. 46

Additional LSO Requirements ............ 49

Finding Information .................... 51

Business Name Registration ............. 51

Taxes and Federal Business Registrations ... 52

Annual Filing with the LSO .............. 53

Licences, Zoning, and Building ........... 54

Licences—Sole Proprietorships and

Partnerships ....................... 54

Licences—Franchises ................... 54

The Home Office ....................... 55

Insurance .............................. 55

Conclusion ............................. 56

Key Terms ............................. 57

Useful URLs ............................ 57

Review Questions ...................... 57

Discussion Questions ................... 58

Scenario-Based Questions ............... 58

Appendix 3.1 Law Society of Ontario,

Application for Certificate of

Authorization for a Professional

Corporation Under Part II of

By-Law 7 ........................... 60

© 2022 Emond Montgomery Publications. All Rights Reserved.

Business Forms

When starting a business, you will need to decide what form your business will take.

You may decide to operate as a sole proprietorship, a partnership, or a professional

corporation. It is important to recognize that not all methods of organizing businesses

are open to paralegals practising in Ontario. A common form of business organization

that is not available to those paralegals is the corporation, although paralegals may

organize their businesses as professional corporations. The relevant distinction

between corporate forms will be explained in this chapter. As you will see, each busi-

ness form has unique advantages and disadvantages (See Table 3.1). It is also possible

to change the form of your business over time. A business that begins as a sole propri-

etorship may later become a partnership and, still later, could become a professional

corporation.

Sole Proprietorship

A sole proprietorship is the simplest form that a business can take. Just as the name

suggests, a sole proprietorship is owned and managed by one person. This means that

the sole proprietor has the freedom to make decisions that directly affect the business

and to manage risks associated with the business. Sole proprietorships are relatively

easy to set up and to terminate. The only legal rules for setting up a sole proprietorship

involve business name registration and business licensing.

Despite the relatively simple and informal set-up procedures involved, sole propri-

etorships have their disadvantages—primarily, unlimited personal liability. This is

because there is no legal separation between the owner of the business and the

business itself. A sole proprietor is personally liable for any debts incurred by thebusi-

ness. This means that paralegals operating as sole proprietors can lose personal assets,

such as their cars or homes, and be forced into personal bankruptcy if sued success-

fully or if unable to pay their business debts.1 The paralegal’s inability to pay those

debts as they become due is called insolvency.2

In addition, since there is no legal separation between the business and its owner,

events such as the sole proprietor’s incapacity or death will result in the dissolution of

the sole proprietorship. The personal bankruptcy of a sole proprietor is also likely to

result in the dissolution of the sole proprietorship.

1 Office of the Superintendent of Bank ruptcy Canada, “Definitions” (last m odified 24 March 2015), online: Govern-

ment of Canada <https://ic.gc .ca/eic/site/ bsf-osb.nsf/eng/br01467.html>.

2 Jan D Weir & Fran Smyth, Essential Concept s of Canadian Tort and Contract Law (Kobo e book, 2020).

bankruptcy

a legal process governe d by

the

Bankruptcy and Insolvency

Act

for a person who can no

longer pay back debt; t he

person who owes the de bt

assigns all assets—with some

exceptions—to a licensed

insolvency truste e who

sells it or uses it to help pay

the debt to the creditor s

insolvency

the inability of a debtor

to pay debt as it is due

34 PRACTICE MANAGEMENT FOR PARALEGALS

© 2022 Emond Montgomery Publications. All Rights Reserved.

TABLE 3.1 Advantages, Disadvantages, and Tax Consequences of Different Forms of Business Ownership

Sole Proprietorship

Description/Characteristics and

Applicable Statutes, By-Laws, or

Rules Advantages Disadvantages Tax Consequences

No legal separation between the

owner and the business.

The business, its assets, and its

liabilities are that of the owner.

A sole proprietor may have

employees and agents and is

responsible for their acts pursuant to

Rule 8.01.

A simple, convenient form in which

to conduct a legal services practice.

The owner has control over all risks

associated with the practice.

Any profits are the owner’s alone.

Unlimited liability is the chief

disadvantage. The sole proprietor is

liable for all debts and obligations

related to the business—personal

assets as well as business assets are

exposed.

Due to unlimited liability, the cost of

insuring against potential losses may

be high.

Risk to clients if practitioner is ill or

dies.

You must calculate your income on a

calendar year basis.

Your net professional income (fees

billed minus business expenses) is

included in your income for tax

purposes.

If you operate out of a home office,

you can deduct a reasonable

proportion of your home office

expenses.

(Continued on next page.)

CHAPTER 3 REGULATORY AND L EGAL ISSUES WHEN STARTING UP 35

© 2022 Emond Montgomery Publications. All Rights Reserved.