Corporations vs. LLPs: What Business Diploma Grads Need to Know About These Business Structures
If you’re interested in a career in business, taking a business management program is a great way to get started. A business diploma can help you develop a broad range of essential business skills, from marketing to payroll, giving you a high degree of flexibility and preparing you for a number of varied positions. It can also equip you with the fundamentals of business operations and entrepreneurship, allowing you to start your own company and work for yourself.
Once you’ve graduated and are ready to either apply for positions with established firms, or put your business knowledge to work in your own start-up company, it might be helpful to understand the differences between business structures, such as limited liability partnerships (LLPs) and corporations, and how those structures can impact the employees and owners of a business.
Here’s a quick comparison to help you understand the difference between these two common types of business structures, and the advantages and disadvantages of each.
LLPs are Easier and Cheaper to Form than Corporations
In terms of costs, LLPs have a distinct advantage over corporations. Forming an LLP requires paying initial registration fees and releasing annual reports, but the burden is significantly less than what is faced by a corporation, which is required to comply with sometimes costly and extensive regulatory requirements. These include extensive record-keeping requirements and the preparation and filing of annual corporate tax returns, in addition to various disclosure requirements and specifications regarding how the business must be governed. This means that LLPs – and those forming them or working for them – can avoid much of the complicated and expensive upkeep involved in running a corporation.
In Most Provinces LLPs are Limited to Groups of Professionals
Despite the lesser requirements, LLPs have one significant disadvantage over corporations, in that they can only be formed by a group of professionals such as lawyers, accountants, or doctors (in every province except BC). This means they’re a great option for professionals looking for tax and liability advantages, and a good option for career-seekers looking to use the skills they’ve learned in their business courses in a professional office environment, but less so for entrepreneurs or businesses that are unrelated to the licensed professions.
Business Diploma Graduates Can Start their Own Corporations
Although LLPs are generally limited to licensed professionals, corporations have no such limitation, and are a more suitable choice for any business diploma graduates who want to start their own company.
A corporation can be formed with only one person and once formed is considered its own separate legal entity. This allows the owner to limit their liability to only what they’ve invested in the business, meaning their personal assets are safe from risk. LLPs also limit liability, though the situation is somewhat more complicated, as each partner is still liable for their own actions and those of their direct employees.
For business management graduates interested in starting their own company, corporations also offer certain benefits when it comes to taxation, as corporate tax rates tend to be lower than individual tax rates. This can allow business owners to save money by keeping surplus funds in their corporation, for example, and only withdrawing them at a later date when their personal tax rate is more advantageous, such as after retirement.
Ultimately, the better structure will be dictated by the requirements of the company, its purpose, and its assets and liabilities. What’s important is simply having the business knowledge to understand which structure is right for the circumstances.
Are you interested in taking the next step in your business career?Contact Canadian Business College to learn about our business management program.