Choosing A Business Structure

In Ontario if you are self employed, you need to register your business and when registering a business you need to identify what structure is right for your business - sole proprietorship, incorporation or partnership. There are pros and cons to each.

First of all, what are each of these business structures?

Sole Proprietorship

This is the simplest structure. There is no legal distinction between you.

The business so you file only one personal income tax on any profit you earned. The taxes maybe higher. Also it will be difficult to raise money. You are responsible for any financial, legal obligations.

However, the advantages of a sole proprietorship is that it is quick to register as a business and has low startup cost. You are the only one who has the decision making power.

General Partnership 

General Partnership is a non incorporated business formed between two people. 

Similar to sole proprietorship it is easy to form and dissolve and has low startup cost.

However tax is filed individually by each partner but profit and loss is shared between the two of them. The workload is also shared between them. It is easier to access capital as well.

The disadvantage is that each partner is liable for the actions of the other partner. There may be a possibility of disputes. So it is a good idea to draw an agreement and consult a tax advisor to determine who is responsible for what.

Incorporated 

In an incorporation the business is separate from you, this provides advantages in taxes and liability - business owners are not responsible for business debts.

Disadvantages are that it is more complex and expensive to set up. The business has its own tax return.

Comparison of different Business Structures

	Sole Proprietorship	Partnership	Incorporation
Debt responsibility	Owner	Both partners responsible for each other	Business
Taxes	Same tax return	Individual tax return for both partners	Separate from owner
Start up Costs	$	$$	$$$
Complexity	-	-	✔️

To read more on different business structures here are some resources (link to resource or links at the end of article)

• FBC - https://fbc.ca/blog/choosing-right-business-structure/

• Feddev Ontario - https://sbs-spe.feddevontario.canada.ca/en/business-structure-which-one-right-you

To see what others are discussing about business structure go to discussion boards (link)