Factsheet

Business structure: which one is right for you?

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When starting your business, choose the business structure that best suits your needs. There are four types of business structures: sole proprietorship, partnerships, corporations and cooperatives.

SOLE PROPRIETORSHIP AND PARTNERSHIPS

This is the easiest and most common way to start a business, but it does come with drawbacks, and all the responsibility for the businesses’ success rests with you as the owner.

Pros Cons
You can register quickly and easily. You must renew your registration every 5 years.
You can lower the cost of your business registration. You and your partners are personally liable for the business.
You receive all of the businesses profits directly. Your name is not protected.
You make all the business decisions. Your income is taxable at your personal rate.

 

CORPORATIONS

A corporation is a legal entity that separates the business from their owner/operator. You can choose to incorporate federally or provincially and each option comes with own advantages and disadvantages.

Pros Cons
Your personal liability is limited. You are required to provide annual filings and corporate records.
Your business name is protected. You will pay more to set up a corporation than other business forms.
You can transfer ownership. You may be required to prove residency or proof of citizenship.
You may qualify for lower tax rates as a corporation.  

 

CO-OPERATIVES (FOR PROFIT AND NOT FOR PROFIT)

A co-operative is a corporation that is organized and controlled by its members. It can be set up to operate as either for profit or as a not-for-profit. Just like a corporation, it can be registered provincially or federally and each option comes with own advantages and disadvantages.

Pros Cons
You will have limited liability. You will have to resolve conflict among members.
Your profits will be distributed among members. Your decision making process might take longer.
Your co-operative is democratically controlled (one member, one vote). You will need all members to participate to succeed.

(Source: Canada Business Ontario)

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