What Are The Different Types Of Business Structures Available In Ontario?
At Blackburn Lawyers – our Richmond Hill business lawyers have assisted clients with their business goals and legal needs since 1975 including choosing the right business structure. Choosing the right business structure is an important legal question you should discuss with your business lawyer or accountant prior to registering your business in Ontario. Business structures are selected based on your business goals, operations as well as your tax goals. Furthermore, there are advantages and disadvantages for each type of structure – all of which you should go through with your business lawyer.
The most commonly used business structures in Ontario are sole proprietorships, partnerships and incorporations and we’ve listed some basic information on them below. Each structure is accompanied by different legal and tax requirements. Please note that this blog is only intended to act as a general overview and does not constitute legal advice. For more specific guidance on what type of business structure is right for you – we recommend you consult with one of our Richmond Hill business lawyers. A corporate lawyer or business lawyer can help guide you on the various types of organization options when embarking on a new venture as well as select the structure that will best suit your needs.
Types of Business Structures in Ontario
- Sole Proprietorship
Sole proprietorships are businesses that are not incorporated and are owned by an individual. Sole proprietors do not have separate legal status from the business. Sole proprietors assume all risks with the business which means your personal property and assets also assume these risks. Sole proprietors pay personal income tax on the net income generated by the business and are required to pay taxes by reporting their net income (and losses) on a T1 income tax and benefit return. When filing income tax returns there are additional forms that need to be filed including accompanying financial statements. You may also be required to register for a GST/HST number in some scenarios. Speak with your business lawyer to see if this option may be suitable for you.
A partnership is a legal entity that is comprised of two or more individuals, corporations, trusts or other partnerships. Each partner is responsible for contributing a defined set of items to the business whether it be money, skills, labour, property or guidance. Each partner is also entitled to a share of the profits (or losses) based on the terms set out in a partnership agreement which we strongly recommend you have finalized prior to embarking on a partnership. Partnership agreements will set out terms regarding the dissolution of the partnership, rules for entering or leaving the partnership, the division of partnership income as well as their expected contributions and more. All partners are bound to the legal terms set forth in a partnership and best practices indicate that each partner seek independent legal counsel prior to entering into a partnership. Additionally, there are specific legal and tax requirements for partners when it comes to reporting income and we recommend consulting with a business lawyer on these as well.
Corporations are separate legal entities that can enter into contracts and own property separately from its owner(s). When a corporation is formed – owners can transfer money, property or services into the corporation in exchange for shares. Individuals who own shares in the corporation are called shareholders and the individual shares can be bought or sold. In order to set up a corporation – articles of incorporation need to be completed with their respective jurisdictions(s). The corporation also has reporting periods which need to be adhered to with respect to GST/HST returns and other tax and income reporting obligations. Directors of a corporation may also have obligations as per the Income Tax Act, Employment Insurance Act, the Canada Pension Plan, the Excise Act 2001 and the Excise Tax Act. For more information on the legalities and tax requirements for this type of business structure – speak with a business lawyer.
Speak With A Business Lawyer at Blackburn Lawyers
Still have questions on what type of business structure is right for you? Our legal team at Blackburn Lawyers would be pleased to assist you and give you legal guidance on the right type of business structure for your business goals.
Contact us today to book a consultation. You can chat with us online, fill out a consultation form or call us by dialing 905-884-9242 to schedule a consultation.