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Canadian Partnership and concept of a company treasury (cash allotment question)


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#1 Skinny Luigi   Members   -  Reputation: 366

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Posted 01 December 2012 - 03:54 PM

Hello,

A partner and I are looking at forming our own game company in Canada and things have been progressing well. We are at the stage where we are looking at the different types of businesses and how we should proceed forward. We had originally been considering incorporation, but looking at what is involved with costs and requirements, we have changed course somewhat. We are now considering forming a partnership and possibly (hopefully!) incorporating after seeing some success and moving this into a full-time venture.

A question that has come up is how to keep a company "treasury". Our original intention with the newly founded corporation would have been to take all company profits and allot some percentage to income for ourselves, and the remaining percentage to the company treasury which would exist as a corporate bank account between us, and would belong to the corporation.

I understand in the case of a partnership, tax-wise, all income is seen as being our personal income and the partnership itself does not exist as a separate legal entity. Presumably we would declare all income as partnership income, work out tax remittance according to the personal income tax rates, and what's left would be our salaries + "company money"; the company wouldn't technically exist as a separate legal entity, so we would need a partnership agreement explicitly requiring each of us to return some percentage of our incomes back into a shared bank account for further company expenditures, etc.

Does this make sense? Is this contractual arrangement even legally possible?
Has anyone else been in this situation and how have they arranged things?

Any insights welcome!

Thank you all!

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#2 bschmidt1962   Crossbones+   -  Reputation: 1699

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Posted 02 December 2012 - 07:59 PM

It would be well worth a couple hundred dollars of your time to ask these questions of a qualified Canadian accountant and/or attorney. Get a recommendation from someone you know who runs a small business (preferably software) and book an hour of your time, laying out exactly what your intentions are and what you'd like to do.

There's some good, basic information here:
http://canadian-lawyers.ca/Understand-Your-Legal-Issue/Business-Law/Partnership-Law/Entering-Into-a-Partnership-Agreement-in-Canada.html

In general, enter into a partnership agreement ONLY with someone you trust completely. This is because each of you is fully liable for debts. So, for example, say you both agree to put 10,000 worth of equipment on a credit card. But then after that, your partner bails. You're still responsible for the full 10,000. You can't just pay the credit card company 'your half' and be done with it. That's one of the big downsides of a Partnership Agreement. You can generally be held responsible for actions of the partners if they're acting in the name of the partnership...

Brian Schmidt
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