If you are thinking of going into business for yourself, there are several routes you can take. Each has different advantages with respect to taxation, personal liability for the business, control of the business, and various other aspects. Knowing which option is right for you requires that you know what each of those options entails. Each of the various business forms available in Canada has benefits and drawbacks. Depending upon your business goals, what is right for others might not be right for you.
What are Your Business Structure Options in Canada?
Canada has three primary forms of business structures — sole proprietorships, partnerships, and corporations. Your choice of which form of ownership you choose for your business could depend upon ease of formation, expense of formation, taxation considerations, liability issues, control over company resources and decisions, and other factors. Each business form has different advantages and disadvantages, and you will have to decide which form best suits your personal situation and business goals. Your three main choices are:
- Sole proprietorship: This business form is the easiest and least expensive to form and does not require a corporate tax return. The owner completely controls the business. On the other hand, the owner also has personal liability for all business debts, it can be difficult to raise capital to expand the business – there are no shares to sell, and banks often avoid lending to sole proprietorships – and it can be hard to sell if you decide to leave the business.
- Partnership: With a partnership, which involves two or more business partners, there is shared risk. There also is shared management, and this business form also does not require a corporate tax return, which simplifies things. On the other hand, any partner is liable for any business debts, which is not good if your partners bail on you, which can happen if the other main risk of partnership arises, which is conflict. Furthermore, it can be complicated to buy out a partner who wants to leave the partnership, as valuation often is a problem.
- Corporation: Forming a corporation is initially the most expensive business form, but it means owners – even if you are the only owner – are not liable for corporate debts. Because it is possible to sell shares in a corporation, it is easier to raise money to fund or expand the business. There also are tax advantages to incorporation. Of course, incorporation is the most expensive option, both to set up and to operate, and the paperwork associated with a corporation is far more extensive (and expensive), including corporate tax returns. The primary reason to incorporate is the lack of liability for the owners for corporate debts and obligations.
There are other, less common, business forms available, such as co-operatives and United States limited liability companies, but both of those also carry with them disadvantages that make them less attractive.
Contemplating Starting a Business in Toronto? Talk to Beganyi Professional Corporation
Beganyi Professional Corporation has the experience and expertise to help you determine what business form is right for you. If you are thinking of starting a business in the greater Toronto area, including Mississauga, Brampton, Oakville, Hamilton, and Milton, talk to the professionals of Beganyi Professional Corporation.