Entrepreneurs can set up their businesses as per different structures depending on their needs in Canada. The choice of business structure often depends on tax implications and liability concerns. As a result, it is important to know the most common business structures available and select a suitable option based on your needs. To start a company in Canada, you can choose the following options.
A partnership is a business arrangement where individuals, corporations, or other alliances work together for profit. You can do a general, limited, or limited liability partnership based on your business’s needs. In a general partnership, all partners share unlimited liability for the business’s debts. A written agreement governs partnerships in Canada. This document outlines the rights and obligations of each partner, ensuring that everyone is informed and prepared.
Partners contribute capital, assets, labour, or expertise and share profits or losses equally unless stated otherwise in the agreement. Registrations of partnerships are necessary as the specific provincial laws of Canada govern them. Limited partnerships offer limited liability to passive investors, allowing them to minimise personal risk while earning returns.
Setting up a business as a corporation creates ownership shares. It offers liability protection by legally separating the shareholders from the company. A corporation is treated as a separate legal entity, providing tax benefits and protecting owners from the company's financial obligations. Directors manage the corporation and can be personally liable for certain statutory breaches, such as unpaid wages during bankruptcy.
In Canada, corporations are the most common business structure, with shareholders generally not liable for corporate debts. Corporations can be incorporated federally under the Canada Business Corporations Act (CBCA) or provincially under laws like the Ontario Business Corporations Act (OBCA). It is important to note that different types of corporations, such as Canadian-controlled private corporations (CCPCs), offer specific tax benefits.
A joint venture is when two or more parties agree to pool resources like goods, services, or capital for a shared business goal. Unlike partnerships, a joint venture is usually temporary and more informal. Each party owns their property and is not considered a joint tenant. Co-venturers share profits and only cover expenses related to the specific project without jointly operating a business.
Tax rules for joint ventures differ from partnerships. For instance, joint ventures are not bound by at-risk rules, and each co-venturer can claim their capital cost allowance independently. Joint ventures also don't need to file information returns.
When considering how to operate in Canada, a foreign organisation can operate by either setting up a new corporation as a subsidiary or can establish a branch of an existing foreign corporation. The decision is usually based on tax considerations. If a branch is chosen, the foreign corporation must register in every province where it plans to conduct business.
However, a company cannot register if their name is identical to an existing business name in that province in Canada. In Ontario, a foreign corporation must apply for a licence from the Ministry of Government and Consumer Services to operate its branch.
A cooperative is a type of corporation controlled by its members. It can be set up for profit or as a not-for-profit. Unlike typical business structures, cooperatives focus on meeting the shared needs of their members rather than maximising profits.
Cooperatives do not follow a standard business model but suit groups of individuals or businesses that want to pool resources. Unlike corporations, Cooperatives offer limited liability, and the members distribute profits. This structure is beneficial for community-focused enterprises or collaborative ventures.
