Business Formation & Legal Structure

Sole Proprietorship

• 1 owner, no formal registration required

• Simplest and cheapest to start

• UNLIMITED personal liability for all business debts.

• Income reported on personal tax return

  • Taxed at personal income rates (pass-through taxation)

• Best for: Freelancers, consultants, early-stage solo founders testing a concept

Partnership

• 2+ owners share profits and losses

• General (all liability) or Limited (investors protected)

• Taxed at personal income rates (pass-through taxation)

• Requires written Partnership Agreement

General Partnership

• All partners share management equally; every partner has voice and vote

• All partners carry unlimited personal liability for all business debts and obligations

• Pass-through taxation

• Created by agreement: written or oral (written is better)

• Low cost to start, but carries HIGH personal risk for all involved

Limited Partnership

• At least 1 General Partner (unlimited liability) and 1+ Limited Partners

  • Limited Partners are liable only up to their investment (personal assets are protected)

    • Cannot participate in management, active management voids protection

• More formal setup required: provincial registration and written LP agreement

  • Moderate start-up cost

• Common in real estate and investment funds

Corporation

• Separate legal entity w/ shareholders; can own property, sue, and be sued

• Limited liability for owners, shareholders' personal assets are protected and liability is limited to investment

• More complex and expensive to set up and maintain

• Subject to corporate tax rates; dividends taxed again at shareholder level (double taxation)

• Governed by Board of Directors, bylaws, and shareholders

  • Must maintain formal records and minutes.

Limited Liability Corporation (LLC)

• Hybrid; liability protection of corp + tax flexibility of partnership

• US-focused; Canadian equivalent is corp (CBCA/provincial acts)

• Limited liability

• Pass-through taxation (flexible)

  • Fewer formalities than corp; governed by Operating Agreement

• Moderate set-up costs

Sole Proprietorship Formation

• No formal registration with government required.

• Register business name (DBA/trade name) if operating under name other than own.

• Obtain relevant business licences for industry and municipality

• Open dedicated business bank account

• Keep business and personal finances 100% separate.

Partnership Formation

• Draft and sign Partnership Agreement

• Register the partnership name with the provincial registry

• File required provincial registration forms

• Obtain required business licences

• Open joint business bank account

Federal/Provincial Incorporation Documents

• Articles of Incorporation

• Corporate By-Laws

• Shareholder Register

• Organizational Resolutions

• Share Certificates

• Notice of Directors

Lawyer prepares these

Articles of Incorporation

Foundational document filed with government; names the corporation, sets share classes and restrictions

Corporate By-Laws

Internal rules governing how company operates, meetings, voting, and director duties

Shareholder Register

Official record of all shareholders and their shares. Required by law

Organizational Resolutions

First board and shareholder resolutions; appoint officers, issue shares, adopt by-laws

Share Certificates

Issued to shareholders as proof of ownership; must be signed by authorized officers

Notice of Directors

Filed with government naming all directors; must be updated when directors change.

Corporate Formalities

Annual Meetings

• Shareholders and directors must hold (and document) annual meetings even if they’re one in the same

Corporate Minutes

• Written records of all board and shareholder decisions; required by law and essential in a dispute or audit

• Legal paper trail

Separate Bank Account

• Business finances and personal finances should never mix

• Commingling funds is a common trigger for veil-piercing by courts.

Sign as a Corporation

• Always sign contracts as 'Jane Smith, President, Acme Corp.'

• Signing personally exposes you to personal liability on corporate obligations

File Annual Returns & Update Directors

• File annual corporate returns with province

• Notify registry of any director or address changes