Types of “Businesses” in Canada

[EN]

As in Brazil, individuals may carry out business activities in different ways in Canada: personally or in partnership, under different business structures.

The first point to bear in mind is that Canadian corporate law is predominantly provincial. Each province has its own legislation governing business entities. Although these laws are similar, each province has its own particularities. An entrepreneur must register in every province where business activities are carried out, even though the business will have its principal registration in one province. That province’s legislation will generally govern most corporate matters.

On the other hand, in the case of a corporation (the Canadian equivalent of a Brazilian “sociedade anônima”), the entrepreneur may choose between federal or provincial incorporation. The main advantage of federal incorporation is nationwide protection of the corporate name.

But what are the ways to set up a business in Canada?

A person who carries out a business without forming a legal entity is known as a “sole proprietorship”. The main consequence is personal and unlimited liability, which puts personal assets at risk for any obligations arising from the business. The advantage is lower cost, as there is no need for separate corporate accounting or maintaining a formal structure; income and taxes are reported directly by the individual, and there are fewer formalities. In general, the main requirement is registering the business name with the provincial authority responsible for business registries, as well as completing any necessary tax registrations. It is also important to pay attention to any local licences required for specific activities.

When two or more persons engage in business together they may choose to form a legal entity or act through a “partnerships”, which may not provide the same liability protections offered by a corporation. When two or more persons carry on a business together without forming a legal entity, they are generally operating as a “general partnership”. This structure also entails the risk of personal liability for the partners.

The third and most common structure is the corporation. It is similar to a Brazilian “sociedade anônima” and is formed by filing the articles of incorporation with the provincial corporate registry, or with the federal authority if the corporation is incorporated under federal law. A corporation must appoint “directors” and “officers” to manage and represent the company. In addition, shares must be issued to shareholders, and internal corporate rules - known as “by-laws” - must be adopted.

There is also another type of partnership that combines partners with limited liability and partners with unlimited liability: the “Limited Partnership”. For those familiar with Brazilian law, it is somewhat comparable to a “sociedade em conta de participação”. The passive investor is the “limited partner”, whose liability is limited to the amount of their contribution, while the “general partner” has unlimited liability and is responsible for the day-to-day management of the business. Often, a corporation is used as the general partner in order to avoid unlimited personal liability. This structure is typically used for businesses with a higher level of complexity.

In any jurisdiction, the choice of business structure must be aligned with the interests and objectives of the parties involved. It is always advisable to assess all relevant aspects, including liability exposure, costs, and the tax implications of each structure.

Legal disclaimer: This text is for informational purposes only and does not constitute legal advice. You should consult a licensed lawyer regarding your specific situation.