by DanielleReese | Feb 24, 2022 | Incorporations
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 |
by DanielleReese | Dec 13, 2021 | Fact Sheet, Incorporations
About Corporations Canada
What is Corporations Canada responsible for?
Corporations Canada is the country’s federal corporate regulator. It administers the laws that allow Canadians to create and maintain a corporation under the federal laws governing corporations in Canada. Note that financial institutions are incorporated by the Office of the Superintendent of Financial Institutions.
What laws does Corporations Canada administer?
Corporations Canada is responsible for the administrating the:
- Canada Business Corporations Act
- Canada Not-for-profit Corporations Act
- Boards of Trade Act
- Canada Cooperatives Act.
It is responsible for compliance activities under these laws, as well as for registering railway deposits and issuing official documents under the Great Seal of Canada.
Annual returns
What is an annual return?
An annual return is a document that all “active” corporations are required to file with Corporations Canada every year under federal legislation. The annual return provides Corporations Canada with up‑to‑date information on the corporation. An “active” corporation is a corporation that is not dissolved, amalgamated with another corporation or continued into another jurisdiction.
An annual return is not the same thing as a tax return, which must be filed with the Canada Revenue Agency.
An annual return must be filed within 60 days of the anniversary date of the corporation — the date on which the corporation was incorporated, amalgamated with another corporation or continued into an act administered by Corporations Canada.
What is the anniversary date of a corporation?
The anniversary date of a corporation is the date on which the corporation was incorporated, amalgamated with another corporation or continued into an act administered by Corporations Canada. An active corporation must file its annual return within 60 days of its anniversary date. Corporations can sign up to receive annual return reminder emails.
Corporations Canada has the power to dissolve a corporation that has not filed its annual returns. Dissolution can have serious repercussions on corporations, including not having the legal capacity to conduct business and losing their charitable status.
You can find the anniversary date of a corporation on Search for a Federal Corporation.
What is an “active” corporation?
An “active” corporation means that the corporation is not dissolved, amalgamated with another corporation or continued into another jurisdiction. Corporations can sign up to receive annual return reminder emails.
Corporations Canada has the power to dissolve a corporation that has not filed its annual returns. Dissolution can have serious repercussions on corporations, including not having the legal capacity to conduct business and losing their charitable status.
You can find the status of a corporation (active, inactive, etc.) on Search for a Federal Corporation.
Business corporations
If a company incorporates at the federal level, does it need to register anything with the provinces?
Federal corporations will likely have to register in any province or territory where they carry on business. Registration is different from incorporation. A corporation may incorporate only once, but it can register to carry on business in any number of jurisdictions.
For more information, see Completing provincial and territorial registration and other requirements.
Not-for-profit corporations
Is an NFP Act corporation automatically considered a registered charity or a non-profit organization under the Income Tax Act?
No, incorporating under the NFP Act does not automatically mean that the corporation will be exempt from taxation under the Income Tax Act. For more information, see Are all not-for-profit corporations the same?.
Where can I find information on registering as a charity or non-profit organization under the Income Tax Act?
For information on registering a charity, see Charities and giving. For information on registering a non-profit organization, see Non-profit organizations.
If a not-for-profit corporation incorporates at the federal level, does it need to register anything with the provinces?
Federal corporations will likely have to register in any province or territory where they carry on their activities. Registration is different from incorporation. A corporation may incorporate only once, but it can register to carry on activities in any number of jurisdictions.
For more information, see Provincial and territorial registrations.
Certificate issuance
The effective date of a certificate of incorporation, amalgamation, continuance or amendment is the date on which Corporations Canada receives your completed application, or, any later date you request. To ensure you receive a specific effective date on your certificate, submit your completed application in advance. An application submitted on a specific date does not guarantee that date. An application is complete when:
- it includes all necessary documents
- the forms are completed and signed, and
- any applicable filing fee has been processed.
If any of these requirements are missing, your application will be considered incomplete.
