A Canadian business company can be owned in four different ways. The following forms of ownership are available in this country:
Each ownership type has its pros and contras and if you are planning to establish a company in Canada, deciding on the form of its ownership for your prospective business can be vitally important. Below we will briefly discuss the essential characteristics of each form of proprietorship and highlight their advantages and disadvantages.
Sole proprietorship in Canada
A Sole Proprietorship is the easiest and the least expensive type of business to establish in Canada. Such a company can be set up within a few days and at an affordable price, and you do not even have to invent a name for it if you want to give your own personal name to the sole proprietorship that you register. Almost every industry in Canada has sole proprietorships or uses those as business partners. In British Columbia, for example, anybody can register as a sole proprietor even if they are not Canadian residents. However, this kind of laissez-faire attitude is not found in every Canadian province, so you have to check the local legislation before you set about establishing a private business in Canada.
The most important advantage of this form of ownership is that the sole proprietor is his or her own boss in the full sense of the word. Of course, there is the other side of the coin too: the private entrepreneur bears the full responsibility for running the business. He or she is the only signatory of all sorts or documents – contracts, bank agreements, tax reports, etc. – and this person is also the only one who has to make all sorts of decisions related to business.
However, the biggest disadvantage of this form of business ownership is the unlimited personal liability that sole proprietors have. This means that they are answerable for all their business obligations to the full extent of their personal property. Thus, if the business fails, the sole proprietor might have to sell his or her personal assets, such as the house or the car, in order to pay back the debts.
There are other, less significant, pros and contras to having a sole proprietorship registered in Canada.
- Not too much regulation on the part of the authorities;
- Tax reporting is quite simple;
- Minimal investment capital required to start a business;
- Some tax deductions are available in case the business is not doing very well (for instance, it is possible to deduct business losses from personal income, and the taxes are lower when profits are small);
- If the private entrepreneur’s spouse is paid a salary, this sum can be deducted from the business profits.
- A profitable private business has to pay rather high taxes in Canada. Thus, the sole proprietor will generally pay in taxes over 40% of the income that exceeds 132,000 Canadian dollars per year;
- In case the sole proprietor is unable to perform his or her business duties, all business operations have to stop;
- Opportunities to raise funds for the company are rather limited. Banks, for example, are often reluctant to give loans to private entrepreneurs or otherwise they charge high interest on these loans.
All in all, a sole proprietorship is not the form of business ownership that we recommend to non-resident Canadians. On the other hand, if you have a brilliant business idea, Canada may be the country where it can be brought to fruition. After all, Canada has been at the top of the list of the most comfortable countries to live in for years now. We will gladly consult you on establishing a company in Canada. As far as a sole proprietorship in particular is concerned, this form of ownership better suits Canadian citizens or the so-called ‘landed immigrants’, those who have a Canadian permanent residence permit. Please write to us to email@example.com and we will also advise on how you can emigrate to Canada and then establish a sole proprietorship there.
Partnership in Canada
If two or more legal entities intend to conduct joint business activities, they can set up a Partnership in Canada. A ‘legal entity’ here can mean a private individual, a sole proprietor, or any type of company including an existing Partnership. Legally, a verbal agreement between Partners is enough to register a Partnership in Canada. However, it is highly recommended to make a written Partner Agreement where the distribution of responsibilities and profits among Partners is clearly described.
Partnerships (and Partners) can be General or Limited. A General Partner has unlimited liability just like a sole proprietor. The liability of the Limited Partner extends to the amount of his or her financial contribution to the Partnership charter capital.
In a General Partnership (where all Partners have unlimited liability) each Partner is responsible not only for his or her own actions but also for those of all other Partners. In addition to unlimited liability, this characteristic of a General Partnership constitutes another serious disadvantage of this form of company ownership. If your Partner fails to carry out a certain action that he was supposed to carry out and this harms your business, you will be held personally responsible for such failure. Plainly speaking, you may have to pay the debt that your Partner has made.
Limited Partners, in their turn, do not participate in the decision-making processes. They are only entitled to the shares of the company profit commensurate to their contributions to its fund.
There are also some less important but still notable pros and contras to establishing a Partnership in Canada.
- The process of registering a Partnership with the authorities is rather fast, simple, and inexpensive in Canada;
- The initial capital comes from several sources;
- The Partners share the management responsibilities as well as the company profits;
- If a Partnership is not making much money, the tax burden is not too heavy.
- Finding a suitable partner can be difficult;
- Conflicts may occur between Partners, which can obstruct the performance of business activities;
- Raising additional funds for the partnership is quite problematic.
As far as non-residents of Canada are concerned, they can legally incorporate or join a Canadian Partnership. Naturally, there are some specifics that the process of establishing a Partnership in Canada has. For instance, in accordance with the legislation, a Partnership registered in Canada must have at least one Canadian resident Partner if the total number of Partners does not exceed four. If it does, minimum 25% of the Partners/ Directors have to be Canadian citizens or landed immigrants. We have vast experience in setting up Canadian Partnerships with the foreign nationals acting as General or Limited Partners. If you are considering establishing a Partnership in Canada please write to us to firstname.lastname@example.org and we will provide professional consultations on this as well as other matters.
Co-operative in Canada
A co-operative is a legal entity that is owned by an association of people who want to satisfy some common needs such as gain access to products or services, sell their products or services, or have employment. The liability of a co-operative is limited to its assets and does not extend to the property of its members. The limited liability that a Canadian co-operative has is its major plus.
There are several different types of co-operatives that exist. A consumer co-operative (or co-op), for example, unites people who want to use some kinds of products or services. There are retail co-ops, housing co-ops, financial co-ops, health-care or child-care consumer co-ops, etc. A producer co-op will process and market the goods or services produced by the co-op members, and/ or supply products or provide services necessary to the members in their professional activities. Examples of producer co-ops are private entrepreneur co-op, artist co-op, or farmer co-op. A worker co-op is meant to provide employment for its members. With this type of co-op, the employees are the co-op members and simultaneously the company owners. Sometimes different stakeholder groups (such as workers, customers, suppliers, etc.) may form a co-operative and then it is regarded as a multi-stakeholder co-op.
The Canadian co-operative is aimed mostly at promoting the spirit of togetherness in its members rather than at making a profit. If there is profit at the end of the fiscal year, the members can decide to put it into the development fund of otherwise distribute this profit among the co-op members in accordance with their respective contributions to the co-op cause.
Even though the Canadian legislation does not prohibit foreigners to be members of a co-op, this is probably not the most interesting form of company ownership for non-resident Canadians. At the same time, if you decide to emigrate to Canada, joining a co-op would help you sooner merge with the local community.
Corporation in Canada
A Canadian Corporation is a legal entity that is detached from its owners in terms of its liabilities. In other words, the debts and other obligations of the corporation are not the debts, etc. of its owners. The owners’ assets remain intact whatever liabilities their corporation has to meet. The limited liability is the most outstanding advantage of having a corporation registered in Canada.
There are also some additional benefits of establishing a corporation in this country that are worth noting:
- A corporation can exist longer than the lives of its owners last as the ownership can be transferred or inherited;
- It is much easier for a Canadian corporation to raise additional capital in comparison to other forms of businesses. First of all, the Corporation is entitled to issuing stocks that are the primary means of attracting investment. Second, banks are more willing to give loans to corporations then to smaller business. Such loans are deemed more secure, and thus the interest rates on them are lower;
- Some tax benefits are available to Canadian corporations as well. For instance, a corporation registered in the province of Ontario has to pay 15.5% tax on the first 500,000 Canadian dollars of taxable income. This is a much smaller percentage than a sole proprietor has to pay in taxes.
- A corporation enjoys a higher status than other types of business companies as it has the ‘big business aura’ by default. Your partners will be more enthusiastic to have business with you if you speak on behalf of a corporation to them. Moreover, some large companies and national governments will not sign any contracts with a company unless it is a corporation. Besides, this corporation had better be legally registered in a trustworthy jurisdiction, such as Canada, for example.
It must be said, however, that there are two notable disadvantages that a Canadian corporation has. First and foremost, a lot of red tape is involved both in the company establishment and in its management. Numerous document has to be collected and registered with the state authorities before the corporation is set up. Some rigorous bookkeeping and accounting is required of Canadian corporations and tax reporting is quite voluminous too. Secondly, the cost of registering a corporation is rather high in comparison to establishing companies with other forms of ownership in Canada.
This said, the registration cost is negligible if the business you are planning to do in Canada is middle-size, let alone a large-scale business. Establishing a corporation in this country does certainly bring many benefits, and with wise management all the investments will eventually pay back. Besides, we are true professionals in dealing with state bureaucracies and we can do all the paperwork for you if you apply for our services. What is more, with our help you can have a company registered in Canada without leaving the comfort of your home. We are keen on remote company registration indeed. Please contact us via e-mail: email@example.com and we will gladly assist you in establishing a company in Canada with the type of ownership that you prefer.