As a Canadian lawyer, I can tell you that there are three main types of business structures in Canada: sole proprietorship, partnership, and corporation. Each type of structure has its own advantages and disadvantages, so it is important to choose the right one for your business.
Sole proprietorship
A sole proprietorship is the simplest type of business structure. It is created when an individual starts a business on their own. Sole proprietors are personally liable for all of the debts and liabilities of their business. This means that if the business is sued or goes bankrupt, the personal assets of the sole proprietor may be at risk.
Sole proprietorships are easy to set up and maintain, and they offer a lot of flexibility. However, the lack of personal liability protection is a major disadvantage.
Partnership
A partnership is a business that is owned and operated by two or more people. There are two main types of partnerships: general partnerships and limited partnerships.
In a general partnership, all of the partners are personally liable for all of the debts and liabilities of the business. This means that one partner may have to pay the debt and rely on the others to repay them for what that partners paid in excess of that proportion of their partnership interest.
In a limited partnership, there are two types of partners: general partners and limited partners. General partners have the same personal liability as general partners in a general partnership. Limited partners, on the other hand, are only liable for the amount of money they have invested in the partnership.
Partnerships can be a good option for businesses that are owned and operated by a small group of people who trust each other. However, the lack of personal liability protection for general partners is a major disadvantage.
Corporation
A corporation is a separate legal entity from its owners. Subject to a few exceptions, in a Business Corporation, the owners of a corporation are not personally liable for the debts and liabilities of the business. This is the major advantage of choosing a corporate structure.
A number of professions allow their members to incorporate a Professional Corporation to run their business. However, this generally does not allow you relief from the debts and liabilities of the Corporation. However, there are income tax considerations and other considerations you will want to review, as a Professional Corporation offers some benefits in this area.
Corporations are more complex to set up and maintain than sole proprietorships or partnerships. However, the increased personal liability protection makes it a good option for businesses of all sizes.
Other types of business structures
In addition to the three main types of business structures listed above, there are a few other types of business structures that are available in Canada. These include:
- Cooperative: A cooperative is a business that is owned and operated by its members. Cooperatives are often used in the agricultural and financial industries.
- Joint venture: A joint venture is a business that is owned and operated by two or more parties. Joint ventures are often used to undertake large projects that would be too risky or expensive for a single party to undertake alone.
- Society: A Society is a not-for-profit corporation incorporated for a purpose related to benevolent, philanthropic, charitable, provident, scientific, artistic, literary, social, educational, agricultural, sporting or other useful purpose, but not for the purpose of carrying on a trade or business to earn a profit.
Which type of business structure is right for you?
The best type of business structure for you will depend on your individual circumstances and the needs of your business. It is important to weigh the advantages and disadvantages of each type of structure before making a decision.
I recommend that you consult with a Canadian business lawyer to discuss your specific situation and to get help choosing the right type of business structure for your business.
This article is for informational purposes only and is not legal advice. Contact us today to discuss your specific situation.