Business Structure and Organization

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When starting a business in Canada, you need to decide on a structure for your company. Some business structures are better than others depending on your idea and what stage you’re at with operations.

Keep in mind that one structure may be good now, and in the future you may want to change it.
 

The business structure you choose determines how the company is taxed and how much paperwork you will have to do each year. There are four business structure types in Canada: sole proprietorship, partnership, corporation, and co-operative. Each has its own benefits and drawbacks, so it’s important to choose the one that’s right for your business. 

A sole proprietorship is an unincorporated business that is owned by one individual. It is the simplest kind of business structure. The owner of a sole proprietorship has sole responsibility for making decisions, receives all the profits, claims all losses, and does not have separate legal status from the business. If you are a sole proprietor, you also assume all the risks of the business. The risks extend even to your personal property and assets.

A partnership is an association or relationship between two or more individuals, corporations, trusts, or partnerships that join together to carry on a trade or business. Each partner contributes money, labour, property, or skills to the partnership. In return, each partner is entitled to a share of the profits or losses of the business. The business profits (or losses) are usually divided among the partners based on the partnership agreement. This structure is commonly seen among professional companies, such as lawyers and dentists.

Incorporation can be done at either the federal or provincial level. Corporations are more complex than sole proprietorships and partnerships, but they offer some significant benefits. One of the biggest advantages of incorporating is that the owners’ personal assets are protected from creditors in the event that the business can’t pay its debts. However, corporations also have some drawbacks. For instance, they’re required to maintain detailed records and file annual reports, which can be time-consuming and expensive.

 Co-operative is a legal structure you can choose for your business or non-profit. Co-operatives can carry on a business, enterprise or service. Co-operatives cannot be banking, loan, trust or insurance companies. You can incorporate a co-operative as a non-profit where it keeps surpluses with the business. Or you can incorporate a co-operative as a for-profit where it distributes surpluses to its members.

Co-operatives have a separate legal status from their members, so liability is limited to the amount of the members’ unpaid shares or membership fees.