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 |
