Making a decision to start a new business is a big step in anyone's life. Choosing what kind of business to register is also an important decision, as it has implacations for the owners should they choose the wrong kind of business. The team at Register My Biz have been doing this a very long time, and this website is built with simplicity in mind in assisting potential business owners with the tools to make the choices they need to make when registering a new business. Using the RMB team takes the complexity out of starting out, Let us do that hard work for you.
Choosing the right form of business ownership is important because the form of ownership you choose will determine how your business is organized, how the money that flows in and out of your business is handled, and how your business is taxed. Use this comparison of the three types of forms of business ownership to help you choose the best form of business ownership for you when you're starting any business in Canada.
1. The Sole Proprietorship
Advantages
- Easiest and most inexpensive to set up.
- Owner solely controls the business.
- Tax reporting is simple (does not require a separate corporate tax return).
Disadvantages
- Unlimited personal liability as there is no separation between the business and the owner.
- Can be hard to raise capital via debt or equity financing (banks are reluctant to lend to sole proprietorships and there are no shares to sell to equity investors).
- Difficult to sell.
2. The Partnership
Advantages
- Shared risk.
- Shared management.
- Tax reporting is simple (does not require a separate corporate tax return).
Disadvantages
- Risk of conflict between partners.
- Either partner can be held responsible for business debts incurred by the other partner.
- Shared decision making.
- Buyouts can be problematic (when one partner wishes to quit the business).
3. The Corporation
Advantages
- Limited liability - owners are not responsible for company debts or obligations.
- Easier to raise capital from investors or financial institutions.
- Being incorporated is often a requirement when doing business with governments or other businesses.
- Business income can be paid out in the form of salary or dividends, allowing you to optimize your tax situation.
Disadvantages
- Most expensive form of business to set up and maintain.
- Involves a lot of ongoing paperwork (must file annual business tax returns).
