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Types of Business Structures

There are three main business structures:  Sole Proprietor, Partnership (General or Limited) and Corporation (Provincial or Federal). This information sheet deals only with for-profit corporations, and does not deal with non-for-profit corporations and cooperatives.
 
Sole Proprietor
A sole proprietor is fully responsible for all debts and obligations related to his or her business.  A sole proprietor has unlimited liability.
 
General Partnership
A General Partnership is an agreement in which two or more persons combine their resources in a business. Each partner is jointly liable for the debts of the partnership.

All partners share the management of the business and each one is personally liable for all the debts and obligations of the business. Each partner is responsible for and must take on the outcomes of the actions of the other partner(s). Because of the shared liability among the partners, it is advisable to seek legal advice to draft a partnership agreement.
 
Limited Partnership
In a Limited Partnership, a person can contribute to the business without being involved in its operations. A limited liability partnership is usually only available to a group of professionals, such as lawyers, accountants or doctors.  This type of registration is done through the Ministry of Government Services.
 
Corporation
A corporation is a legal entity that is separate from its owners, the shareholders. A shareholder of a corporation is not personally liable for the debts, obligations or acts of the corporation, except if the shareholder has provided personal guarantees for the company's debts. As well, if a shareholder has another relationship with the corporation, for example, as a director, then he or she in certain circumstances may be liable for the debts or liabilities of the corporation in that capacity. This type of business can be incorporated at either the federal or provincial level. A corporation is identified by the terms "Limited", "Ltd.", "Incorporated", "Inc.", "Corporation", or "Corp.". It is advisable to seek legal advice when setting up a corporation.
 
 

Advantages and Disadvantages of Different Business Structures

Sole Proprietor

Advantages:
  • relatively low start-up costs
  • greatest freedom from regulation
  • owner in direct control of decision making
  • minimal working capital required
  • tax advantages to owner
  • all profits to owner
Disadvantages:
  • unlimited liability
  • lack of continuity in business organization in absence of owner
  • difficulty raising capital
 
Partnership
 
Advantages:
  • ease of formation
  • relatively low start-up costs
  • additional sources of investment capital
  • possible tax advantages
  • limited regulation
  • broader management base
 Disadvantages:
  • unlimited liability
  • lack of continuity
  • divided authority
  • difficulty raising additional capital
  • hard to find suitable partners
  • possible development of conflict between partners

Corporation

Advantages:
  • ownership is transferable
  • continuous existence
  • separate legal entity
  • possible tax advantage
  • easier to raise capital
  • limited liability
  • specialized management
Disadvantages:
  • closely regulated
  • most expensive form to organize
  • charter restrictions
  • extensive record keeping necessary
  • double taxation of dividends
  • possible development of conflict between shareholders and executives
 
Information is taken from the Canadian Business Ontario website, http://www.cbo-eco.ca/en/.   
Forms of Business Organizations:  http://goo.gl/W9cmf2.
 
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