Forms of Business Organization

1. Sole Proprietorship

This is generally the simplest way to set up a business. A sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor would normally have a right against all of his or her assets, whether business or personal. This is known as unlimited liability.

If the proprietor chooses to carry on a business under a name other than their own, they must register with the Ministry of Government Services (MGS) under the Business Names Act (if a sole proprietor establishes a business in his/her own name, without adding any other words, it is not necessary to register the business). Business name registration is valid for five years at which time a renewal is required.

Please note: The registration of the business name does not in itself ensure the exclusive use of that name in Ontario for the individual registering it. MGS has no obligation to avoid name duplication or to advise anyone registering a name that it has been previously registered.

For further information:
please call 1-800-361-3223 or (416) 314-8880
visit these Web sites:
Business Names Act
Ministry of Government Services-Starting a Business
http://www.cbs.gov.on.ca/mcbs/english/starting_business.htm

To find an Ontario Business Connects workstation near you, call (416) 314-9151 or 1-800-565-1921.

2. Partnership

A partnership is an agreement in which two or more persons combine their resources in a business with a view to making a profit. In order to establish the terms of the business and to protect partners/shareholders in the event of disagreement or dissolution of the business, a partnership/shareholders agreement should be drawn up, usually with the assistance of a lawyer. Partners share in the profits according to the terms of the agreement.

i. General Partnership

All members share the management of the business and each is personally liable for all the debts and obligations of the business. This means that each partner is responsible for and must assume the consequences of the actions of the other partner(s). The names and pertinent information of all the partners must be registered with the Ministry of Government Services. The registration must be renewed every five years.

ii. Limited Partnership

Some members are general partners who control and manage the business and may be entitled to a greater share of the profits, while other partners are limited and contribute only capital, take no part in control or management and are liable for debts to a specified extent only. A legal document, setting out specific requirements, must be drawn up for a limited partnership. Limited Partnerships are also registered with the Ministry of Consumer and Business Services in Ontario. This form of business organization must also be renewed every five years.

For further information:
please call (416) 314-8880 or 1-800-361-3223
visit the Web site:
Ministry of Government Services-Starting a Business
http://www.cbs.gov.on.ca/mcbs/english/starting_business.htm

3. Corporation

A corporation is a legal entity that is separate from its owners, the shareholders. No shareholder of a corporation is personally liable for the debts, obligations or acts of the corporation. Directors, officers and insiders can bear some liability for their involvement with the corporation. A corporation can be formed at either the federal or provincial level.

A corporation is identified by the terms "Limited", "Ltd.", "Incorporated", "Inc.", "Corporation", or "Corp.". Whatever the term, it must appear with the corporate name on all documents, stationery, and so on, as it appears on the incorporation document.

i. Private Corporation

A private corporation can be formed by one or more people. A majority of its directors must be Canadian residents. If none of the directors reside in the province in which it does business, the corporation must appoint a Power of Attorney who resides in the province. A private corporation cannot sell shares or securities to the general public.

ii. Public Corporation

Generally, a "public corporation" is one that offers its securities to the public. Also, if a company intends to distribute securities to the public in Ontario, it must comply with the prospectus requirements outlined in the Ontario Securities Act, unless a suitable exemption is available.

For further information
please call (416) 593-8314 or 1-877-785-1555
visit the Web site:
Ontario Securities Commission
http://www.osc.gov.on.ca/index_en.jsp
Ontario Securitites Act

iii. Provincial Corporation

Private and public corporations may be incorporated provincially under the Ministry of Government Services (MGS) Business Corporations Act (BCA).

If you plan to incorporate a business in Ontario, you must submit the following to the Companies and Personal Property Security Branch using either paper forms or electronically via the Internet:

• the Articles of Incorporation (Form 1 under the BCA) completed in duplicate, and bearing original signatures on both copies; (Please note that all business corporations must have shares. Therefore, Article 6 of the form must be completed, e.g. "unlimited common shares");
• a Newly Upgraded Automated Name Search (NUANS) report. This is a computer report consisting of corporate names, business names and trademarks that have already been registered and are similar to the proposed corporate name. The NUANS can be conducted by a searcher of record or by OnCorp Direct Inc. (at http://www.oncorp.com ), Business Access (at http://www.busaccess.com/ ) or Bix-Connex (at http://www.biz-connex.com/bizconnex/default.aspx ). Please contact the provider of your choice for information on the fees for a NUANS. A NUANS is not required if incorporating a numbered company;
• a covering letter, identifying the name, return address and telephone number of a contact for the corporation;
• a fee of $360, for paper filing (made payable to the Minister of Finance) or a fee of $300, for electronic filing (Note: Electronic filing of Articles of Incorporation, BCA Form 1, is available through two primary service providers under contract with the MGS: Cyberbahn Inc. at http://www.cyberbahn.ca/ or OnCorp Direct at http://www.oncorp.com/ . Please check with the service provider for additional administration fees);
• other support documents, if required (e.g. Legal opinion).

For further information:
please call (416) 314-8880 or 1-800-361-3223.
see the document Ontario Business Incorporation

iv. Federal Corporation

Businesses may be incorporated as private and public corporations federally under the Canada Business Corporations Act. A federally incorporated corporation can carry out business throughout Canada, although it may be required to register or obtain a licence in a province in which it does business. Federally incorporated businesses that wish to conduct business in Ontario should contact the Companies and Personal Property Security Branch at (416) 314-8880 or 1-800-361-3223 for additional information.

Anyone wishing to form a corporation under federal law must make an initial filing. The following documents and fees are required:

• Form 1 - Articles of Incorporation;
• Form 3 - Notice of Registered Office;
• Form 6 - Notice of Directors;
• federal NUANS report (original), not more than 90 days old. The NUANS search can be conducted at http://strategis.ic.gc.ca/sc_mrksv/corpdir/corpFiling/engdoc/index.html , or by a searcher of record. Please contact the provider of your choice for information on the fees for a NUANS. (Note: a NUANS search is not required when making an initial filing for a corporation number only).
• Filing fee of $250 payable to the Receiver General for Canada. (Note: for transactions completed online, the fee is $200).

For further information:
please call 1-866-333-5556
visit these Web sites:
Guide to Federal Incorporation
http://strategis.ic.gc.ca/epic/internet/incd-dgc.nsf/en/h_cs01914e.html
Canada Business Corporations Act Information Kits
http://corporationscanada.ic.gc.ca/epic/internet/incd-dgc.nsf/en/home?OpenDocument
Canada Business Corporations Act
http://laws.justice.gc.ca/en/C-44/
see the document Federal Business Incorporation - Canada Business Corporations Act (CBCA)

4. Co-operative

A co-operative is a corporation organized by people with similar needs to provide themselves with goods or services, or to make joint use of their available resources to improve their income. Their business structure ensures:

• all members have an equal say (one vote per member, regardless of the number of shares held);
• open and voluntary membership;
• limited interest on share capital;
• surplus is returned to members according to amount of patronage.

There is no requirement to incorporate as a co-operative in order to run your business collectively and cooperatively. However, it is illegal in Ontario to use the word "co-operative" in connection with the name of an enterprise unless the group is incorporated under the Co-operative Corporations Act.

For further information:
visit these Web sites:
Co-operative Corporations Act
http://192.75.156.68/DBLaws/Statutes/English/90c35_e.htm
How to Form a Co-operative
http://www.omafra.gov.on.ca/english/busdev/facts/02-019.htm
Forming Our Co-operative
http://www.agr.gc.ca/policy/coop/kitcoop/index.html

Ontario Co-operative

Ontario co-operatives are registered by the Financial Services Commission of Ontario, Licensing and Enforcement Division of the Ontario Ministry of Finance (MOF). The fee for incorporating a non-profit co-operative is $155; the fee for incorporating other types of co-operatives is $335.

For further information
please call (416) 250-7250 or 1-800-668-0128
visit these Web sites :
Financial Services Commission of Ontario
http://www.fsco.gov.on.ca/
Co-operative Secretariat
http://www.agr.gc.ca/rcs-src/coop/index_e.php

Federal Co-operative

Federal co-operatives fall under the Canada Cooperatives Act. Federal co-operatives are registered through the Corporations Directorate of Industry Canada. Fees are now $200 when submitted on-line and $250 for all other means.

For further information:
please call 1-866-333-5556
visit these Web sites :
Canada Cooperatives Act
http://laws.justice.gc.ca/en/C-1.7/index.html
Corporations Canada
http://corporationscanada.ic.gc.ca/epic/internet/incd-dgc.nsf/en/home?OpenDocument Canada Cooperatives Act
http://laws.justice.gc.ca/en/C-1.7/index.html
see the document Federal Co-operatives

5. Advantages and Disadvantages of Each Form of Business Organization

1. Sole Proprietorship
Advantages	Disadvantages
ease of formation	unlimited liability
low start-up costs	difficulty raising capital
less administrative paperwork than some other organizational structures (such as incorporation)	lack of continuity in business organization in the absence of the owner
owner in direct control of decision making
minimal working capital required
tax advantages to owner
all profits to owner
2. Partnership
Advantages	Disadvantages
ease of formation	unlimited liability (for general partners)
low start-up costs	lack of continuity
additional sources of investment	capital divided authority
broader management base	hard to find suitable partners
	possible development of conflict between partners
3. Corporation
Advantages	Disadvantages
limited liability	closely regulated
specialized management	most expensive form to organize
ownership is transferable	charter restrictions
continuous existence	extensive record keeping necessary
separate legal entity	double taxation of dividends
possible tax advantage (if you qualify for small business tax rate)
easier to raise capital
4. Co-operative
Advantages	Disadvantages
owned and controlled by members	longer decision making process
democratic control: one member, one vote	requires members to participate for success
limited liability	extensive record keeping necessary
profit distribution (surplus earnings) to members in proportion to use of service; surplus may be allocated in shares or cash possibility of development of conflict between members	less incentive to invest additional capital

Adapted with permission from "Forms of Business Organization" :
© Saskatchewan Economic and Co-operative Development, Regional Economic Development Services

DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.