This post is part of a series on my story incorporating in Canada.
Once you decide on starting a business, after, hopefully, careful consideration and thought, one of the first things you will want to do is register with the government, which means you need to decide on a business structure:
- Sole Proprietorship
- Partnership
- Corporation
Or, as I like to look at it:
- Corporation
- Not a Corporation
The reason I prefer to look at it this way is because sole proprietorship and partnerships are mutually exclusive and really depend on how many people are in the business with you. If you are alone and you choose to go as a “non-corporation”, then you must be a sole proprietorship. If you have more than one person and you choose to go as a “non-corporation”, then you must be a partnership. You can’t be a sole proprietorship and have other than yourself as the owners of the business.
So how should you decide which way to go. This table is a quick comparison between the two.
| Corporation | Non-Corporation |
|---|---|
| Registration is more Expensive | Registration is Cheaper |
| Registration is a bit more involved | Registration is Simple |
| The company is much more closely regulated by the CRA | Less closely regulated |
| Corporations have a lot more formalities to go through (board meetings, director meetings etc.) | A lot less formalities |
| You do not receive profits directly, you are paid either a salary or dividends | You receive profits directly |
| The company profits may qualify for lower taxes | You are taxed at the personal rate |
| You have a limited liablility for the company losses | You (and your partners) are personally liable for the company losses |
| Your name is protected | Your name is not protected |
It may look like the non-corporation has fewer cons but it’s quality not quantity that counts. You have to look at your own situation and decide. If you don’t know the ropes of running a corporation, are short on time, with a very limited budget and you’re not too worried about liability (you don’t think your clients will be sueing you!) then a non-corproation might be enough.
In our case we were starting a design and development company where we would be hosting people’s websites. If things went wrong we could be liable for any damage, so the limited liability was very enticing. The tax benefits and the name protection were also big bonuses. It seemed that the only thing we really needed was to figure out all the formalities and the paperwork behind starting and running a corporation.
Next Steps
- Incorporating Federally or Provincially?
- NUANS Name Search and Pre-Approval
- Submitting Articles of Incorporation and Deciding Share Provision Structure
