Sole proprietorship, partnership, corporation or co-operative?

When you decide to start your own business, you need to determine what type of business structure best suits your needs. There are four types of business structures: sole proprietorship, partnership, corporation and co-operative.

Sole proprietorship

With this type of business organization, you are the sole owner, and fully responsible for all debts and obligations related to your business. All profits are yours to keep. Because you are personally liable, a creditor can make a claim against your personal assets as well as your business assets in order to satisfy any debts.

Advantages:

• Easy and inexpensive to register
• Regulatory burden is generally light
• You have direct control of decision making
• Minimal working capital required for start-up
• Some tax advantages if your business is not doing well (for example, deducting your losses from your personal income, and a lower tax bracket when profits are low)
• All profits go to you directly

Disadvantages:

• Unlimited liability (if you have business debts, claims can be made against your personal assets to pay them off)
• Income is taxable at your personal rate and, if your business is profitable, this could put you in a higher tax bracket
• Lack of continuity for your business if you are unavailable
• Can be difficult to raise capital on your own

Partnership

A partnership is a non-incorporated business that is created between two or more people. In a partnership, your financial resources are combined with those of your business partner(s), and put into the business. You and your partner(s) would then share in the profits of the business according to any legal agreement you have drawn up.

In a general partnership, each partner is jointly liable for the debts of the partnership. In a limited partnership, a person can contribute to the business without being involved in its operations. A limited liability partnership is usually only available to a group of professionals, such as lawyers, accountants or doctors.

When establishing a partnership, you should have a partnership agreement in place. This is important because it establishes the terms of the partnership and can help you avoid disputes later on. Hiring a lawyer or other legal professional to help you draw up a partnership agreement will save you time and protect your interests.

Advantages:

• Fairly easy and inexpensive to form a partnership
• Start-up costs are shared equally with you and your partner(s)
• Equal share in the management, profits and assets
• Tax advantage — if income from the partnership is low or loses money (you and your partner(s) include your shares of the partnership in your individual tax returns)

Disadvantages:

• There is no legal difference between you and your business
• Unlimited liability (if you have business debts, personal assets can be used to pay off the debt)
• Can be difficult to find a suitable partner
• Possible development of conflict between you and your partner(s)
• You are held financially responsible for business decisions made by your partner(s); for example, contracts that are broken

• Legal issues for small business
  Do you really need a lawyer when you start your small business? Find out how legal counsel could benefit your business.

Corporation

Another type of business structure is  a corporation. Incorporation can be done at the federal or provincial/territorial level. When you incorporate your business, it is considered to be a legal entity that is separate from its shareholders. As a shareholder of a corporation, you will not be personally liable for the debts, obligations or acts of the corporation. It is always wise to seek legal advice before incorporating.

Advantages:

• Limited liability
• Ownership is transferable
• Continuous existence
• Separate legal entity
• Easier to raise capital than it might be with other business structures
• Possible tax advantage as taxes may be lower for an incorporated business

Disadvantages:

• A corporation is closely regulated
• More expensive to set up a corporation than other business forms
• Extensive corporate records required, including documentation filed annually with the government
• Possible conflict between shareholders and directors
• You may be required to prove residency or citizenship of directors

More information:

• Federal business incorporation
  Access convenient online and paper methods of incorporating your business federally.
• Steps to incorporating
  Follow these step-by-step guidelines to help you incorporate your business federally and set up an appropriate structure.
• Create and maintain a federal not-for-profit corporation
  Discover how to incorporate and run your not-for-profit organization at the federal level.

Provincial or territorial incorporation

Alberta

• Corporate Registry
  
  Only Applies to : Alberta
  To conduct business in Alberta, register your cooperative, corporation, extra-provincial company, non-profit company, society, trade name and/or partnership.
• New West Partnership Trade Agreement
  
  Only Applies to : AlbertaBritish ColumbiaManitobaSaskatchewan
  If your business is located in British Columbia, Alberta, Saskatchewan or Manitoba this agreement can save you time as it allows for a seamless business registration between provinces.

British Columbia

• Corporate Online
  
  Only Applies to : British Columbia
  Learn how to register your provincial or extra-provincial company in BC.
• New West Partnership Trade Agreement
  
  Only Applies to : AlbertaBritish ColumbiaManitobaSaskatchewan
  If your business is located in British Columbia, Alberta, Saskatchewan or Manitoba this agreement can save you time as it allows for a seamless business registration between provinces.

Manitoba

• Companies Office — Business name registration and provincial incorporation (Manitoba)
  
  Only Applies to : Manitoba
  Find out how to register your business, and what you need to know about provincial incorporation.
• New West Partnership Trade Agreement
  
  Only Applies to : AlbertaBritish ColumbiaManitobaSaskatchewan
  If your business is located in British Columbia, Alberta, Saskatchewan or Manitoba this agreement can save you time as it allows for a seamless business registration between provinces.

New Brunswick

• Incorporation / registration of a business
  
  Only Applies to : New Brunswick
  Find out about the rules, procedures and fees for registering a provincial corporation in New Brunswick.
• Incorporation of non-profit companies (New Brunswick)
  
  Only Applies to : New Brunswick
  Find out about the rules, procedures and fees for incorporating a not-for-profit company in New Brunswick.
• Registration of an extra-provincial corporation (New Brunswick)
  
  Only Applies to : New Brunswick
  Find out about the rules, procedures and fees for registering an extra-provincial corporation in New Brunswick.

Newfoundland and Labrador

• Registry of Companies (Newfoundland and Labrador)
  
  Only Applies to : Newfoundland and Labrador
  In Newfoundland and Labrador, you must register with the Registry of Companies if you decide to incorporate provincially.

Northwest Territories

• Corporate Registries — Co-operative Associations
  
  Only Applies to : Northwest Territories
  Are you looking to establish and incorporate a co-operative within the Northwest Territories? Learn the rules in order to stay compliant with the law.
• Corporate Registries — Business Corporations
  
  Only Applies to : Northwest Territories
  Are you looking to incorporate your business? Find out how you can register your business in the Northwest Territories.
• Corporate Registries — Societies
  
  Only Applies to : Northwest Territories
  Are you interested in starting a society or non-profit organization? Learn the benefits and requirements of incorporation.

Nova Scotia

• Business incorporation and registration
  
  Only Applies to : Nova Scotia
  Incorporate your business provincially through the Nova Scotia Registry of Joint Stock Companies.
• Community Interest Company
  
  Only Applies to : Nova Scotia
  You can register your corporation under this designation to combine business with social purpose.

Nunavut

• Legal registries (Nunavut)
  
  Only Applies to : Nunavut
  In order to do business in Nunavut, you must register with the territory, even if you live in or have a business established in another part of Canada.

Ontario

• Start, dissolve and change a corporation
  
  Only Applies to : Ontario
  Learn about the requirements for starting a corporation, including a not-for-profit and how you can make changes to your current business.
• Business name registration information (Ontario)
  
  Only Applies to : Ontario
  Register your business name online, in person or by mail.
• Professional corporations
  
  Only Applies to : Ontario
  Find out how you can incorporate your practice in Ontario for specific regulated professions.

Prince Edward Island

• Corporate services — Business name registration
  
  Only Applies to : Prince Edward Island
  Register your business name in Prince Edward Island to prevent other organizations from using the same business name.

Quebec

• Constitute a Quebec business corporation
  
  Only Applies to : Quebec
  Learn the steps to constitute your business corporation in Quebec, especially the forms to be filled out and the application process.

Saskatchewan

• Incorporating your business in Saskatchewan
  
  Only Applies to : Saskatchewan
  Find out how to incorporate your business in Saskatchewan, including the fees, the forms required and the turn-around time.
• Forming a non-profit corporation in Saskatchewan
  
  Only Applies to : Saskatchewan
  Find out how to register your non-profit corporation in Saskatchewan, including the fees, the forms required and the turn-around time.
• New West Partnership Trade Agreement
  
  Only Applies to : AlbertaBritish ColumbiaManitobaSaskatchewan
  If your business is located in British Columbia, Alberta, Saskatchewan or Manitoba this agreement can save you time as it allows for a seamless business registration between provinces.

Yukon

• Business registration in the Yukon
  
  Only Applies to : Yukon
  In order to register your business in the Yukon, you will need to contact Corporate Affairs.

Co-operative

A co-operative is owned and controlled by an association of members. It can be set up as a for-profit or as a not-for-profit organization. This is the least common form of business, but can be appropriate in situations where a group of individuals or businesses decide to pool their resources and provide access to common needs, such as the delivery of products or services, the sale of products or services, employment, and more.

Advantages:

• Owned and controlled by its members
• Democratic control (one member, one vote)
• Limited liability
• Profit distribution

Disadvantages:

• Longer decision-making process
• Participation of all members is required in order to succeed
• Possible conflict between members
• Extensive record keeping
• Less incentive to invest additional capital

Registering your business

• Registering your business
  Learn about the requirements for registering your business with different levels of government.

Changing your legal status

Are you planning to change the legal status of your business — for example, from sole proprietorship to partnership, or from partnership to corporation? In most cases you will have to close your existing business number (BN) and CRA accounts, and register for new ones.

• Changing your business status
  Find out what you should do when you make changes to the structure, status or ownership of your business.

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