Types of Business and Structures in Canada: Which is Right for You

Canada is home to over 1.2 million small businesses, according to Innovation, Science and Economic Development Canada. Each year, thousands of entrepreneurs launch new ventures across the country. 

The type of business in Canada you choose can impact your taxes, how much paperwork you need, and even how much of your personal money is at risk. It also affects how you deal with the Canada Revenue Agency (CRA), hire staff, or raise funding.

In a Hurry to Know the Type of Businesses in Canada?

1. Sole Proprietorship
2. General Partnership
3. Limited Partnership
4. Corporation
5. Cooperative

Read on to know what is best for you.

Why Choosing the Right Business Structure Matters

When you start a business, the legal structure of the business in Canada matters. It impacts how much you pay in taxes, your paperwork, your funding options, and your personal liability. 

Some structures are better for small operations. Others are better for growing companies or partnerships.

Once you understand your goals, you’ll be in a better position to choose. Now let’s look at the business ownership types Canada offers.

Types of Business Structure in Canada

1. Sole Proprietorship

This is the most common business structure in Canada, especially for new and small businesses.

A sole proprietorship is simple. You own the business yourself. There’s no legal difference between you and the business. You report your business income on your personal tax return.

Pros:

• Easy to set up
• Low cost
• Full control

Cons:

• You are personally responsible for business debts
• Harder to raise money

You’ll need a Business Number (BN) from the Canada Revenue Agency (CRA) if you collect GST/HST or hire employees. This is a great option for freelancers or small service businesses.

2. General Partnership

If two or more people want to run a business together, a general partnership might work.

This type of business in Canada allows partners to share profits, losses, and management duties. Each partner is personally responsible for business debts.

Pros:

• Easy to set up
• Shared work and costs
• Simple tax filing

Cons:

• Personal liability for all partners
• Disagreements may happen

You can register your partnership with your province and apply for a BN with the CRA if needed. A written agreement is also a smart idea.

3. Limited Partnership

This is another form of partnership. In a limited partnership, some partners manage the business (general partners) and some only invest money (limited partners).

General partners carry personal liability. Limited partners usually do not. They only risk the money they invest.

This is one of the more flexible business structure options in Canada. It’s useful if you want investors who don’t help run the business.

4. Corporation

A corporation is a separate legal entity. This means the business operates independently. It can own property, take loans, and be taxed apart from its owners.

Many people choose incorporation when they want to grow or limit their personal risk. A corporation can be set up at the provincial or federal level. A NUANS name search is required to check the business name.

Pros:

• Owners have limited liability
• Easier to raise money
• Can sell shares

Cons:

• More paperwork
• Higher setup costs
• Complex tax rules

You must register for a BN and file taxes separately from your personal return. You may also need GST/HST registration.

Incorporation is a common path for startups and growing companies. It’s also popular among professionals like doctors and lawyers.

5. Cooperative

A cooperative is owned and run by a group of people. These could be workers, customers, or both. The goal is to meet their shared needs, not to make a profit for outside owners.

This type of business can work well in farming, housing, and community services.

Pros:

• Shared ownership
• Democratic decision-making
• Access to government funding

Cons:

• Complex setup
• Decisions can take time

You need to incorporate the co-op and follow co-op rules under federal or provincial law.

Registering a Business in Canada

Once you pick a structure, you must register your business. Here’s how to do it:

1. Choose a name
   
   • Use a NUANS name search for corporations
   • Check your province’s registry for other business types
     
2. Register the name
   
   • Register your name if it’s different from your own (for sole proprietors)
     
3. Get a Business Number (BN)
   
   • This comes from the CRA
   • Needed for taxes, payroll, and GST/HST registration
     
4. Check licenses and permits
   
   • Use the BizPaL tool to find what you need for your industry

This process may vary by province. For example, rules for business formation in Canada can differ in Ontario vs. British Columbia.

Federal vs. Provincial Incorporation

If you choose to incorporate, you must choose between federal and provincial registration.

Federal Incorporation:

• Let’s you operate across Canada under one name
• Gives national business name protection

Provincial Incorporation:

• Cheaper and simpler
• Easier if you only operate in one province

Each has its pros and cons. If you plan to grow nationally, federal may be the better path.

Which Type of Business Is Right for You?

There is no one-size-fits-all answer. The best type of business in Canada depends on your goals. Here are some ideas:

• Are you working alone and want something simple? A sole proprietorship could be best.
• Starting with friends? Try a general partnership.
• Want investors but don’t want them to manage? Look into a limited partnership.
• Planning to grow big? Think about a corporation.
• Want to serve a community or group? A cooperative may work well.

Think about how much risk you can take. Consider how much time you want to spend on paperwork. Also, look at your tax options.

Final Thoughts

Each structure has its own pros and cons, so it’s important to pick one that matches your aim. Whether you’re starting a small business or planning to grow your existing business, your decision affects taxes, liability, and paperwork.

Not sure which path to take? 

Bestax can help you register your business the right way, from start to finish. 

Our expert business consultants can guide you through the process, whether it’s a sole proprietorship, partnership, or full incorporation, so you can focus on building your business.

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Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.