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Now that you have decided on starting your own business, you will have to determine what business structure or form of organization suits your needs.

Sole Proprietorship

With this type of business organization, you would be fully responsible for all debts and obligations related to your business and all profits would be yours alone to keep. As a sole owner of the business, a creditor can make a claim against your personal or business assets.

Advantages:

• Easy and inexpensive to form a sole proprietorship (you will only need to register your business name provincially)
• Relatively low cost to start your business
• Tax advantages if your business is not doing well, for example, deducting your losses from your personal income, lower tax bracket when profits are low
• All profits will go to you directly

Disadvantages:

• Unlimited liability (if you have business debts, personal assets would be used to pay off the debt)
• Income would be taxable at your personal rate and, if your business is profitable, this may put you in a higher tax bracket

Partnerships

A partnership would be a good business structure if you want to carry on a business with a partner and you do not wish to incorporate your business. As a partner, you would share in the profits of your business according to the terms of your agreement.

You may also be interested in a limited liability partnership in the business. This means that you would not take part in the control or management of the business, but would be liable for debts to a specified extent only.

Advantages:

• Equal share in the management, profits and assets
• Tax advantage, if income from the partnership is low or loses money (you and your partner include your share of the partnership in your individual tax return)

Disadvantages:

• Similar to sole proprietorship, as there is no legal difference between you and your business
• You are held financially responsible for business decisions made by your partner (for example, contracts that are broken)

Corporations

Another business structure is to incorporate your business. When you incorporate your business, it is considered to be a legal entity that is separate from the owners and shareholders. As a shareholder of a corporation, you will not be personally liable for the debts, obligations or acts of the corporation.

Advantages:

• Limited liability
• Ownership is transferable
• Possible tax advantage as taxes may be lower for an incorporated business

Disadvantages:

• More expensive to incorporate than a partnership or sole proprietorship
• Extensive corporate records required, including shareholder and director meetings, and documentation filed annually with the government