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Federal, Provincial, or Extra-provincial
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Choosing the Right Business Structure for Your Canadian Company
Choosing the right business structure is one of the most important decisions when starting a business in Canada. It affects how your business is taxed, your personal liability, ownership arrangements, and ongoing reporting requirements. Find out what type of business structure is best for you!
Not Sure Which Business Structure to Choose?
​Understand the differences between a sole proprietorship, partnership and corporation before making your decision.
There are three main types of entities that businesses can choose from: Sole Proprietorship, Partnership, and Corporation. Each has its own advantages and disadvantages.
SOLE-PROPRIETORSHIP
A sole proprietorship is the simplest form of business ownership in Canada. The business is owned and operated by one individual, who reports business income on their personal tax return.
Key considerations:
Simple setup, fewer administrative requirements, and personal responsibility for business debts and obligations.
PARTNERSHIP
A partnership involves two or more individuals or entities carrying on a business together. Partners generally share business profits, and obligations according to their agreement.
Key considerations:
Shared ownership, flexible management arrangements, and potential personal liability depending on the partnership structure.
CORPORATION
A corporation is a separate legal entity from its shareholders. It can own assets, enter contracts, earn income, and operate independently of its owners.
Key considerations:
Limited liability protection (subject to exceptions), potential corporate tax planning opportunities, business continuity, and additional annual filing obligations.
Federal
Federal incorporation establishes a corporation under the Canada Business Corporations Act.
It may be suitable for businesses planning to operate across Canada or seeking broader corporate name protection.
Federal corporations may still need to register extra-provincially in provinces or territories where they conduct business.
Provincial
Businesses can incorporate under the legislation of their chosen province or territory, subject to applicable requirements.
Provincial incorporation may be suitable for businesses primarily operating within a particular province. Each jurisdiction has its own registration procedures, government fees, annual filing requirements, and corporate legislation.
A provincially incorporated business may also operate in other provinces or territories, although additional registrations may be required.
Should you incorporate?
Incorporating a company lets you pay a lower tax rate than individuals. Sole proprietorships and partnerships pay a higher income tax rate than incorporated businesses.
-Simpler capital access
-Reduce tax rate
-With limited liability
-Independent legal entity
-Consistent existence
Incorporation services
-Name approval
-Certificate of incorporation
-Notice of articles
-Share certificates
-Incorporation agreement
-Minute book
CRA registrations
-CRA Business Number
-GST Account
-Payroll Account
-Dividends Account
-Import Export Account