Contemplating the initiation of a business can evoke a sense of overwhelming complexity when confronted with the decision of selecting a suitable model. As the first substantial decision you will make as a business owner, it is important to emphasize the importance of adopting a structure that aligns with the objectives and requirements of your enterprise.
In an effort to assist in this decision-making process, we have broken down the most common types of business structures to help you decide which arrangement is best suited for your small corporation.
Sole Proprietorship
A sole proprietorship is a business with one sole owner. These business owners are considered self-employed and perform all business operations themselves. They are also required to assume all liabilities in association with their business.
| Pros | Cons |
| Quick and easy registration. | Registration renewal every five years. |
| Low start-up costs, including registration fees. | The organization can not run in your absence. |
| All profits go to the owner. | No protection for your business name. |
| The owner, you, is in control of decision making. | Your income is taxable at your personal rate. |
| Tax advantages for the owner. | Unlimited liability. |
| Maximum freedom from regulatory rules. | Harder to raise capital. |
Partnerships
A partnership is a structure where a company is operated by two or more parties. All partners are equally responsible for their corporation – this includes day-to-day operations and debts.
| Pros | Cons |
| Easy to form partnerships. | Unlimited liability. |
| Low start-up costs, including registration fees. | Authority is divided amongst partners. |
| Additional sources of investment capital. | May be difficult to raise additional capital. |
| Decisions are easy when all parties have aligned visions. | Difficulty finding suitable partners who align with your goals and vision. |
| Possibility of tax advantages. | Internal conflict may develop between partners. |
| Limited regulatory rules. | No name protection for your business. |
Corporations
When you incorporate a business, you are creating a legal entity called a corporation. In this model, the business is separate from its shareholders who own the company.
| Pros | Cons |
| Personal liability is limited. | Shareholders risk being held legally responsible for certain circumstances. |
| Protection for your business name. | Most expensive types of business to form. |
| Ownership can be transferred. | Requirement to prove residency or proof of citizenship. |
| Qualify for lower tax rates (small business tax rate). | Corporations are strictly regulated and restricted by charters. |
| Continuous existence in the absence of the owner. | Required to perform extensive record – keeping including annual filings and corporate records. |
| Easier to raise capital funds. | Possibility of paying extra taxes on profits. |
Co-Operatives
A co-operative is owned by an association of people or businesses who have pooled their resources together for a common goal. They are developed to create communities and jobs by offering a range of support services like housing, food or health care.
| Pros | Cons |
| Personal liability is limited. | Required to resolve conflict when it arises between members. |
| Members will be distributed profits evenly. | Decision making process can take longer as everyone needs to vote. |
| Co-operatives are democratically controlled (one member, one vote). | All members must participate for success. |
Whether you know which business structure is best tailored for your small business or you are still unsure, it is always best to contact a lawyer. Lawyers who focus on business law will be able to give you advice on how to proceed and help with implementing all the necessary steps to get you started.
Our experienced business law team is well-versed in the world of businesses and is to help guide you through all the necessary business decisions. Whether you’re starting a new business or looking to improve an existing one, we have all the insights to help you get sorted.
Contact us today and let us help you get on the right track to starting your new venture.
