Choosing the Legal Structure of Your Business

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Toronto lawyer Jonathan Kleiman has some advice about the basics of a legal business structure. Decide which structure you’ll build your business with, based on your needs.

  1. Corporation:A woman smiles as she shakes a male colleague's hand across a table.

    Corporations are legally treated like a person. They can sue and be sued, pay taxes, borrow money, hire employees, and own assets. They have shareholders who are not liable for company debt. The biggest risk here is that shares drop to zero, but shareholders don’t have a huge stake in the company beyond that. There can be two or more shares in a corporation. They also have directors who are liable for unpaid taxes and employee wages. Register your corporation federally or register to operate by province if you’re not selling outside of your province. For info on how to incorporate, check out the government of Canada’s page here

  2. Sole proprietorship:  
    You’re liable for yourself. That means you alone own the company, pay taxes on it, and risk your personal assets. It’s the most basic business structure. The benefit? All profits are yours. 

  3. Partnership
    The same as a sole proprietorship, but for partners of two or more people. It could be you and a friend, trusted colleagues or family members.  

  1. Limited Partnership (L.P.)
    Like a partnership, but less equal. One person runs the company while the other puts money into it without being liable. You might have a partner who grants you $100,000 for your business, but you’re the one who decides how to use it. Investors in an L.P. must not be allowed to make or influence your business decisions.