Quick Guide: Selecting a company structure for your new business
DanielleReese
Table of Contents
How to Select a Business Structure
Choosing how you structure your business is one of the bigger decisions you’ll make as you set up your new business. The type of structure you decide on will depend on whether you want to run the business solely as a trade name, partnership, or with associates as a limited corporation. Learn more about each type of business structure, along with the advantage and disadvantages of each.
It’s important to keep in mind that you are not locked into the structure you choose. You can change how you structure your business as your business grows, so feel free to start off as a trade name or partnership, and switch to a limited corporation later. You can also move from an incorporation to a trade name or partnership.
Why Choose a Trade Name?
Also referred to as a sole proprietorship
A form of un-incorporated business that’s owned and operated by one individual/entity, with no legal distinction between the owner and the business
Business owner is fully responsible for all profits and losses
Advantages
Disadvantages
One of the simplest forms of all business structures
No ownership or protection of the business name
Low start-up costs
Business owner has unlimited liability
Limited obligation after registration
May be difficult to raise capital for the business as there are no shareholders/investors
Business owner is in direct control of decision-making and receives all profits associated with the business
Lack of continuity in absence of owner
Potential tax advantage for the owner
Business cannot change ownership or continue without the owner
Why Choose a Partnership?
A form of un-incorporated business in which two or more individuals/entities combine their resources to form a company with the intent to make a profit
Structure is similar to that of a trade name, with the business owners fully responsible for all profits and losses
Advantages
Disadvantages
One of the simplest forms of all business structures
No ownership or protection of the business name
Low start-up costs
Business owner has unlimited liability
Limited obligation after registration
Each owner responsible for and must assume the consequences of the actions of the other partner(s)
More than one owner allows for additional resources for investment
Multiple owners offers a broader management base
Why Choose a Limited Corporation
The most common form of incorporated business in Alberta
Protects the owners (shareholders) of the corporation from majority of liabilities
Allows shareholders to profit from the success of the corporation, without them being personally responsible for the debts, obligations or acts of the other shareholders of the corporation, except in rare circumstances
Advantages
Disadvantages
Owners have limited liability
More expensive to organize and create than trade name or partnership
Ownership is transferrable
Business will be closely regulated
Corporation is a separate legal entity and has the same rights, protections, and responsibilities under the law as individuals do
Setting up as a corporation requires extensive record keeping and increased maintenance fees
Easier to raise capital through the sale of shares
Have ownership of the incorporated name
May be perceived as more stable than un-incorporated companies
