Legal entity

How BC law treats it

The main legal entity for a BC business is a company incorporated under the Business Corporations Act, SBC 2002, c 57 (BCBCA) by filing an incorporation application and notice of articles with the BC Registrar of Companies. The company is a separate person from its shareholders, a principle traced to Salomon v A Salomon & Co Ltd, [1897] AC 22 (HL). It owns its own assets, owes its own debts and continues despite changes in ownership. The BCBCA also permits unlimited liability companies, which are separate entities but whose shareholders can become liable for company debts on liquidation. Other BC entities include societies under the Societies Act, SBC 2015, c 18 (non-profit bodies) and cooperative associations under the Cooperative Association Act, SBC 1999, c 28. A federal corporation or a company from another province is also a legal entity, but it must register as an extraprovincial company to carry on business in BC. Some common business forms are not separate legal persons. A sole proprietorship is simply an individual carrying on business. A general partnership, limited partnership or limited liability partnership under the Partnership Act, RSBC 1996, c 348 is a relationship among partners, although it can sue and be sued in the firm name under the court rules. BC has no limited liability company (LLC). An individual does not need an entity to do business in BC, but must register any business name other than their own legal name and obtain required licences.

What it means for your business

Choosing whether to operate through a legal entity decides who owns the business assets, who is liable for its debts, how profits are taxed and how easily the business can bring in investors or be sold. A company can hold contracts, leases and intellectual property in its own name, which keeps them separate from the owner's personal affairs. Contracts signed in a personal name, or before the company exists, can leave the owner personally bound. Example: A Kelowna web designer has been working as a sole proprietor and signs a new office lease in her own name. She later incorporates a BC company, but the landlord can still pursue her personally under the lease unless it is assigned to the company with the landlord's consent and she is released.

Risks and common mistakes

Describing a BC business as an LLC, a form that does not exist under BC law. Assuming a partnership is a separate entity that shields the partners, when general partners are personally liable for partnership debts. Signing contracts in a personal name after incorporating, which makes the individual, not the company, the party. Carrying on business in BC through an Alberta or federal corporation without extraprovincial registration. Mixing personal and company funds, which complicates accounting and tax and weakens the separation the entity provides.