In Canada, business can be registered and operated as any of the following:
- Sole Proprietorship;
- Partnership; or
Each business form offers some advantages and disadvantages to a business owner. Not all businesses need to be incorporated as a company. There are a number of things that you would need to consider before deciding on a business form.
Sole Proprietorship in Canada
A sole proprietorship comes into existence whenever you start to carry on business for your own account without taking the steps necessary to use some other form of organization, such as a corporation. There are very few formalities if you wish to operate as a sole proprietor.
A sole proprietor can start conducting business in her or his own name or can use a different name. If you decide to use a different name in Ontario, you are required to register the name under Ontario’s Business Names Act. You would also need to register for a GST/HST account with Canada Revenue Agency, once your business starts earning an income of more than $30,000.
A sole proprietor pays personal income tax on the net income generated by the business and if your business income increases substantially, you might want to consider incorporation.
There is a common misconception that a sole proprietor cannot hire employees or deduct business expenses. A sole proprietor can deduct business expenses and hire employees but you may wish to consult a lawyer or an accountant to understand the limitations of this business structure.
Partnership in Canada
A partnership is created where two or more persons carry on business together with the intention of earning a profit. There are mainly two types of partnerships – general (or ordinary) and limited.
General Partnership is created when there is no specific partnership agreement between the parties. If there is no partnership agreement between the parties, the provincial partnership statute (or Act) governs their relationship. If you establish a partnership in Ontario and do not have any partnership agreement, the Ontario Partnership Act will govern your relationship. In case of a dispute or disagreement, you and your partner(s) will refer to the Ontario Partnership Act to see how to resolve the issue or who has what rights.
Limited Partnership is created when an investor wants to be able to share the partnership profits but wants to limit her or his liability for losses. The investor becomes the limited partner and atleast one other partner needs to be a general partner with unlimited liability.
Limited Partnerships are governed by the provincial partnership statue. In Ontario, limited partnerships are governed under the Limited Partnerships Act.
Incorporating a Company in Canada
You can also operate your business as a registered company. For a company to be created, it has to be incorporated under the federal or provincial laws.
A federal company is incorporated under the Canada Business Corporations Act . If you intend to carry out your business activities in several provinces or internationally, you might wish to consider federal incorporation.
A provincial company is incorporated under the provincial statue. In Ontario, provincial companies are registered under the Business Corporations Act. If you intend to carry on your business within one province, you may wish to consider provincial incorporation. If you incorporate provincially and then decide to expand your business to other provinces, your lawyer or accountant can help you with registration in other provinces.
If you intend to limit your liability from creditors, get business investors in the future, offer shares of your business to professionals in exchange for their services, or believe that your business will earn a lot of money, you should consider incorporating your company.
For more information on the ideal set-up for your particular business, please contact us through the contact form.