Which business structure is right for me?

There are three types of business structures. Each type of business structure has its advantages and disadvantages. In order to determine which business structure is suitable for you, speak to your accountant.

Sole Proprietorship

  • A sole proprietorship is an unincorporated business that is owned by one individual. It is the simplest form of a business set-up to start and maintain.
  • As a sole proprietorship, there is no difference between the business and the owner. The business assets are your personal assets, and the business liabilities are your personal liabilities. You undertake all the risks associated with the business.
  • As a sole proprietorship, you report all profits or losses of the business on a personal income tax and benefit return T1 and a Quebec equivalent. Part of your income tax return will include the form “Statement of Business Activities”.


Advantages
Low costs and easy to run
Records kept to a minimum
All profits are yours
Tax advantages - business losses against personal income
You make all your business decisions

Disadvantages
Unlimited liabilities
Not eligible for EI
Liable for all debts of business

Partnership

  • A partnership is the relationship between two or more who join together to carry on a trade or business. Each partner contributes money, property, labour, or skills, and each expects to share in the profits and losses. A partner can be an individual, corporation, trust, estate, or another partnership.
  • All general partners are personally liable for partnership liabilities. There can be no limited partners in a general partnership.


Advantages
Low cost to set up
Additional investment capital
Tax advantages
More skills, talents and experience
Minimum record keeping

Disadvantages
Unlimited liabilities
Joint decisions
Responsible for actions of your partner(s)

Incorporation

  • A corporation is created when there is the participation of many people. A corporation is a legal entity unto itself, separate from the people who own shares in it. This business structure is effective especially when raising capital. The corporation has its own rights and responsibilities.
  • As a separate legal entity, the business is liable for everything it owns and it is responsible for everything it does.
  • As a shareholder of the business, you have no personal liability for the company’s debts; liabilities are limited to the assets of the company unless you have provided your personal guarantee.


Advantages
Limited liability unless provide personal guarantees
Business continuity
Tax advantages
Easier to raise capital
Separate legal entity

Disadvantages
Expensive to establish
Rigorous record keeping
Dividends taxed twice
Directors held responsible