Sole Proprietorship: an individual who carries on business by themself.
The owner of this business acquires all of the benefits of the business while being personally responsible for all of the business’s obligations and debts.
Few formal legal requirements.
One requirement vis-a-vis Ontario’s Business Names Act: No person can conduct business using a name other than their own unless the business name is registered under the Act.
Registration is valid for 5 years and must be renewed following the fifth year.
Corporation: a group of people or series of office holders who in law collectively comprise a single, separate legal entity. As a separate legal entity, a corporation is considered to be a separate person with a legal personality, existence, rights, abilities and duties that are separate from the individuals or collective that constitute the corporation.
A corporation ensures “limited liability” for all shareholders in the corporation; a shareholder is only liable to the amount that they invested in the corporation.
A corporation can:
have perpetual existence;
sue and be sued in its own name; and,
hold property, possess rights, and incur debts and other liabilities separate from its shareholders.
A corporation must:
have Articles of Incorporation;
(Articles specify the types and classes of shares that will exist, and shareholders acquire the rights that are given to their particular share.)
have by-laws; and,
hold at least one shareholder meeting and one directors meeting annually.
The legal requirements of a corporation depend on whether the corporation exists at a provincial or federal level.
Governed by Ontario’s Business Corporations Act (“OBCA”).
One requirement of the OBCA is that Ontario corporations must hold Board of Directors meetings in Canada.
A business that is incorporated provincially can only conduct business within Ontario.
To conduct business in another jurisdiction or to relocate, the business must apply for registration as an extra-provincially licensed corporation in the jurisdiction of relocation.
Governed by the Canada Business Corporations Act (“CBCA”).
A business that is incorporated federally may conduct business anywhere in Canada.
Partnership: two or more persons carrying on business together with a view for profit.
Created by a partnership agreement.
Name of a partnership must be registered in accordance with the Business Names Act.
A partnership can exist between an individual and a corporation (a corporation is a legal person).
A partnership is not a separate legal entity from its partners (unlike a corporation).
The actions of one partner binds all of the partners.
A partnership dissolves or becomes insolvent when a partner dies or in the event that one partner provides notice to all of the partners of their intention to dissolve the partnership.
Governed by Ontario’s Partnerships Act.
Each partner is an agent of the other; if one partner makes an agreement on behalf of the partnership, the other partners are obligated by the agreement unless it was made by the partner acting out of the scope of the business or where the third party had knowledge that the partner did not have authority to act for the partnership.
Partners are entitled to share in the profits or losses of the business. If a ratio is not set, the law assumes that all partners are equally entitled.
Governed by Ontario’s Limited Partnerships Act.
Legally created by filing a declaration with the Registrar of Partnerships.
A new declaration must be filed when the composition of the partnership changes or five years after the previous declaration filing date.
Each Limited Partnership has at least one limited partner and at least one general partner.
A general partner is responsible for the debts of the partnership if the assets of the partnership cannot cover the cost of the debts.
A limited partner is a “silent partner”; they invest in the business but do not have a role in running the business.
Shares in the business profits.
Occasionally advising on the business is permitted however if a limited partner begins taking an active role in running the business, they will become a general partner. In becoming a general partner, their assets are open to seizure by creditors if the partnership is found liable.
Creditors cannot seize the personal assets of limited partners.
Questions to Consider
Is having limited liability important? If the business suffers a loss will there be insurance available?
Are there substantial personal assets that require protection from creditors?
How many owners of the business will there be?
What roles do investors have in the business? Active or passive?
What are the tax obligations?
Where does the company want to do business? Provincially? Federally? Internationally?