How you structure your business will depend on the nature of your business, your resources and your business goals. The following is a brief description of the different business structures to consider:
Sole Proprietorship
A sole proprietorship is the simplest way to carry on business. A sole proprietorship exists when an individual carries on business for his or her own benefit without using any other form of business organization or involving any other individuals other than as employees.
There are no set-up fees and no separate income reporting requirements for sole proprietorships. The owner or proprietor is fully liable for all of the debts and obligations of the business, and declares the business income or losses on his or her personal income tax. In Ontario, when a sole proprietor carries on business under a name other than their own, they must register the name with the Ontario Ministry of Government Services.
Partnership
A Partnership is a relationship in which two or more persons (whether individuals or corporations) carry on business together with a view to making a profit. Similar to a sole proprietorship, the partners carry on business themselves directly; the partnership is not a legal entity separate from its partners. A partnership agreement establishes the terms of the business and protects the partners in the event of disagreement or dissolution of the business. In Ontario, a partnership must be registered with the Ministry of Government Services.
General Partnership – In a general partnership, all partners share in the management of the partnership. Each is personally liable for the debts and obligations of the partnership and for the consequences of the actions of the other partners.
Limited Partnership – In a limited partnership, the liability of the “general” partners is unlimited, while the liability of the “limited” partners is limited to the amount which that partner contributed to the partnership.
Corporations
A corporation is an entity that is entirely separate from its owners (the shareholders). The owners are therefore not personally liable for the debts and obligations of the business. A corporation can be formed at a federal or provincial level, and is identified by one of the following terms in its name: Limited, Ltd., Incorporated, Inc., Corporation, or Corp.
Private Corporations – A private corporation can be formed by one or more persons. A majority of its directors must be Canadian residents. If none of the directors reside in the province in which it does business, the corporation must appoint a Power of Attorney who resides in the province. A private corporation cannot sell shares or securities to the general public.
Public Corporations – Generally, a “public” corporation is one that offers its securities to the public. If a corporation intends to distribute securities to the public in Ontario, it must comply with the prospectus requirements outlined in the Ontario Securities Act.
Charitable and Non-Profit Organizations
The terms non-profit and charity are often used interchangeably although the entities are not necessarily the same. “Non-profit” usually describes social clubs, professional groups, recreational & sporting clubs, fraternal organizations and trade groups. “Charity” usually refers to organizations that promote religious, educational or scientific endeavours or those providing some form of care or help to disadvantaged or unfortunate members of society.
Joint Ventures
A joint venture is a commercial arrangement carried on jointly by and for the benefit of the participants. It can take the form of co-ownership of property, a partnership, a limited partnership or a corporation.
Franchises and Licences
Franchise agreements and licences are used to transfer industrial or intellectual property rights from one entity to another.
Franchises – A franchise is a commercial relationship where a franchisee licenses the trade name and trademarks owned by a franchisor for use in connection with specific goods and services. The franchisee must follow the business procedures set out in the franchise agreement under the close scrutiny of the franchisor.
Licences – A license is an agreeement between the owner of property and a licensee, which grants the licensee the right to use of the property for a fee in circumstances where the licensor has little or no control over the licensee’s business. The property licensed may include patents, trademarks, copyright, know-how or technical data.
Co-operatives
A co-operative is a corporation organized by people with similar needs to provide themselves with goods or services, or to make joint use of their available resources. The business structure of a co-operative ensures that all members have an equal say (one vote per member) regardless of the number of shares held, membership is open and voluntary, there is limited interest on share capital and surplus income is returned to members according to amount invested.
There is no requirement to incorporate as a co-operative in order to run your business collectively and cooperatively. However, you must do so if you wish to use the word “co-operative” in Ontario connection with the business unless it is incorporated under the Co-operative Corporations Act.