4 Business Owner Types in Canada (With Pros and Cons)

By Indeed Editorial Team

Published June 17, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Opening a company involves choosing a specific business structure, and each type comes with its own set of advantages and disadvantages. Several factors differentiate business ownership types, including the risk involved, the amount of ownership, and the relevant tax regulations. Understanding the different business owner types allows you to help entrepreneurs and investors looking to undertake their own business ventures. In this article, we discuss the most common types of business owners and corporations, review the advantages and disadvantages of each, and share what to consider when choosing a business structure.

The most common business owner types

There are four primary business owner types, including:

Sole proprietorship

Sole proprietorships are businesses owned and operated by one individual. There's no legal distinction between the business owner and the business entity. In this structure, business owners can use personal assets to finance business assets, which debt collectors may then take as collateral if the business default on its loans. Here are the advantages and disadvantages of sole proprietorships:

Advantages

The advantages of a sole proprietorship include:

  • Simple and easy to set up

  • Single owner holds full legal and business control

  • Doesn't require a separate tax return and processing as it's part of the owner's tax return

Disadvantages

The disadvantages of a sole proprietorship include:

  • Owners can lose personal assets if they opt for unlimited personal liability in case of bankruptcy

  • Owners are responsible for raising capital upfront

Read more: What Is a Structure of Business? Understanding 3 Main Types

Partnership

A partnership is an arrangement between two partners to advance their mutual interests as a business. Partners can be individuals, businesses, groups, or organizations. A written agreement that both parties sign dictates the structure of the business, including ownership and risks, before starting the partnership.

Business owners can choose limited liability partnerships or unlimited liability partnerships. In a limited liability partnership, individual partners don't accept losses caused by another, meaning one partner's debts don't risk the other partner losing their personal assets. In an unlimited liability partnership, all partners handle the business. If one partner is directly responsible for a loss, all other partners pay for the debt, even if they're not directly responsible for the losses. Here are the advantages and disadvantages of partnerships:

Advantages

The advantages of a partnership include:

  • Greater access to resources, funding, and knowledge

  • Reduced startup costs and expenses

  • The division of labour among partners creates a better work-life balance

Disadvantages

The disadvantages of a partnership include:

  • Partners are equally responsible for the debts of the business, regardless of who holds the debt

  • Less autonomy in business actions and decisions

  • Can be difficult to sell if both partners don't accept the same terms

  • Potential for conflict among partners

Learn more: 10 Key Entrepreneurial Skills You Need to Start a Business

Corporation

A corporation is a legal business structure where the company is an entity separated from its owners. Corporations can earn a profit, hold assets, and incur debt as their own entity. An individual or a group can own a corporation. As a corporation is its own entity, the personal assets of its owners aren't at risk in the event of bankruptcy. Here are the advantages and disadvantages of incorporating:

Advantages

The advantages of a corporation include:

  • Business owners aren't responsible for business debts

  • The easiest structure to generate capital and business investment

  • Business owners can issue dividends from earnings, or companies can pay them as salary, allowing partners to optimize their tax situation

Disadvantages

The disadvantages of a corporation include:

  • Most complex and expensive to set up and maintain

  • Regular auditing and paperwork as corporations require their own tax return

Learn more: Essential Entrepreneur Traits to Help Your Business Succeed

Cooperative

A cooperative is an enterprise privately owned by the same people who benefit from it. The owners of a cooperative, who are also the shareholders, participate in the decision-making process. There's no limit to the number of shareholders in a cooperative, which means there's no limit to the number of owners.

Depending on their shareholdings, owners receive a share of the profits from the cooperative's investments. A board elected by the owners manages the cooperative. Here are the advantages and disadvantages of a cooperative structure:

Advantages

The advantages of a cooperative include:

  • Democratic control by members who have equal rights

  • Brings people together for a common cause

  • Provides access to diverse and unique funding opportunities

Disadvantages

The disadvantages of a cooperative include:

  • Fewer incentives for angel investors and venture capitalists

  • Potential for slow decision-making among owners

Different types of corporations

Canada recognizes five different types of corporations, each with its own limitations, including:

Canadian-controlled private corporation (CCPC)

CCPCs are Canadian-owned businesses that meet a specific set of criteria set out by the Canadian Revenue Agency (CRA). These corporations get favourable tax breaks and incentives to promote entrepreneurship and business growth in the Canadian economy. It's compulsory for CCPCs to be private corporations, have full ownership by Canadian residents, and be available for purchase on the Canadian stock exchange. They cannot have a majority stakeholder interest by any party outside of Canada. While it's difficult to meet the criteria of CCPC, the tax incentives make this form of corporation highly lucrative.

Other private corporation

Other private corporations are companies in Canada that don't meet the requirements of a CCPC. This can be because of several factors, including foreign ownership, foreign stock market access, and international divisions. The CRA classifies these corporations as other private corporations for tax and places them in a higher tax bracket.

Public Corporation

The public stock exchange lists public corporations, and anyone may buy a controlling interest. Selling shares of stock on a public stock exchange dictates ownership of public corporations, and the percentage of shareholder ownership depends on how much capital the business requires. The percentage of ownership available for sale is up to the discretion of corporation owners.

Corporations controlled by a public corporation

Public corporations control these structures, but the government lists them as private. While these corporations don't list shares on the stock exchange, the public has ownership of the corporation that controls the business. For example, if a public corporation expands its operations and develops subsidiary businesses, the CRA can classify its subsidiaries as corporations controlled by public corporations.

Other types of corporations

The CRA classifies all other remaining corporations as others for tax returns. These corporations don't meet the standards of the other four types but still exist as corporations. Crown corporations are a common form of other corporations.

What to consider when choosing a business structure

Here are some key factors to consider when choosing which business structure works best for an investor:

Risk

The level of risk they're willing to undertake can help business owners determine which structure works best for them. As different business structures hold different levels of risk, deciding whether they want to leverage their personal assets is an important factor. If they want to limit their risk, limited partnerships or corporations can help them protect their personal assets. If they want to start their business with their own capital, a sole proprietorship may be most suitable.

Capital

When choosing a business structure, it's important to consider how much capital an investor has. As raising funds for a business can be difficult, they may need access to the resources provided by a partnership or corporation. If they have the money to invest in their business, a sole proprietorship may be the best option at first. If they require the support of investors and grants, they may consider incorporating. The loans and grants an investor may be eligible for can also help determine how they structure their business.

Exit strategy

When considering which structure is best for their business, investors can analyze the outlook of their business plan. If they plan on only holding on to their business for a few years before selling, a sole proprietorship may be the best option for them. When they have other parties sharing ownership of their business, this can make selling it more difficult. Differing interests regarding the longevity of their business can also lead to conflict. If they choose to enter a partnership, they may choose to establish a buy-out plan in case they wish to sell their portion of the business.

Growth

Before choosing the right structure, investors can also consider the growth and future of their business. If they have plans to launch it to the public one day, they might consider establishing a corporation. If they have plans on remaining the sole owner of the business for its entire duration, they can start with a sole proprietorship.

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