Types of Business Registrations in Ontario

There are different ways of setting up your business in Ontario. There are some legal steps that should be taken before you start any sort of business. If you have never started a business before, you may not be familiar with the different ways your business can be run, and what legal steps need to be put in place. Here is what you need to know about setting up your business in Ontario.

Sole Proprietorship in Ontario

One of the most common types of business vehicles is the sole proprietorship. This means that the business is owned and operated by an individual. The owner, also known as the sole proprietor, is personally responsible for the debts and obligations of the business. The owner also owns all assets used in the business. Sole proprietors do not file separate tax returns for their business. The sole proprietor keeps all the profits earned by the business in the year that the profits are earned. The sole proprietor is also personally liable if anything happens to go wrong with your business.

For example, if a sole proprietor is sued successfully, the sole proprietor’s hard-earned assets could be seized by the creditor to satisfy the debt. That means that you could lose not only your business assets, but also your personal assets, such as your house.

The main advantage of running a business as a sole proprietor is that the sole proprietor has full control over the nature of the business, and may be able to achieve certain cost savings from a legal and tax perspective. The main downside is that the sole proprietor is liable for anything that could go wrong in the business.

Ontario Corporation

A corporation is another type of business entity in Ontario and Canada; they will have “Ltd.”, “Limited”, “Inc.”, “Incorporated”, “Corp.” or “Corporation” at the end of their name. A corporation is a separate legal entity so it is treated differently from sole proprietors. Corporations have to file separate corporate tax returns, and they have annual record-keeping requirements, meaning that corporations will have annual legal and accounting expenses.

Companies can be formed at either the federal or provincial level; where you incorporate depends a lot on what business you conduct and where. Companies have different people involved; shareholders are the ultimate owners of the company while the business of the company is directed by the company’s officers and directors.

The law treats the company as a distinct and separate legal person from its owners, meaning that the owners (being the shareholders), are not personally liable for the company’s actions (please note that there are certain specific exceptions to this non-liability).

One main advantage of running your business through a corporation is that you do not have the same level of personal liability. In addition, being incorporated can be good for marketing as it makes your business appear more legitimate. The downside to incorporating is largely cost-based; you have to file separate tax returns and you will have annual record-keeping obligations, as well as the up-front cost of the initial incorporation.

Partnership

Another type of business vehicle in Ontario is the partnership. A partnership is where two or more “people” (being natural people and/or companies) are involved in making decisions about the business, and they all share in the profits and losses.

Partnerships can be informal, such as when two or more people work together towards a common goal with a view to splitting the profits in some fashion, or they can be more formal, such as with limited partnerships, or limited liability partnerships. Other than with some more specialized partnerships, partners in a partnership are personally liable for the business’ debts and they may be personally liable for their partners’ negligence. In addition, the partners all personally claim the profits.

There are special rules and regulations governing limited partnerships and limited liability partnerships and you should consult with a lawyer should you be considering becoming involved in either a limited partnership or a limited liability partnership. You can mitigate some of your risk of being a partner by entering into a partnership agreement. A partnership agreement will set out each partner’s obligations and will likely contain cross-indemnities among the partners. One advantage to using a partnership as your business vehicle is that a partnership can be cost effective to set up, and you do not have separate tax filings. The main disadvantage is the partners’ personal liability for the other partners’ actions.

Registration of your Business Entity

The Business Names Act sets out certain requirements if you are conducting business other than in your own name. Registration can be fairly easy, and the consequences of using a name that is not properly registered can be severe. Always ensure that you have properly registered your business name before you invest any time or money into marketing your business with any name.

Summary

Before you start conducting business in Ontario you need to decide the type of business that you want to operate and the business vehicle you want to use to operate it. You should talk to a professional such as a lawyer so you know your rights and what is going to be required of you with the various business types, both at the outset and on an annual basis. Make sure you have a proper business plan before you start your business to ensure that everything runs smoothly.