If you have decided to start a business, or you are already a business owner, it is very important that you decide which legal structure of business will best suit your needs. There are three main legal forms of business. These are sole proprietorships, partnerships, and corporations. If you are starting your business on your own, then you can choose to have either a sole proprietorship or a corporation as your business structure. If you are starting your business with at least one other person, then you can choose to have either a partnership or a corporation as your business structure.
There are important legal differences among the three forms of business. As an example, both sole proprietors and the partners of a partnership are not considered legally separate from the business. This means that the business owners are personally responsible for every asset and liability of the business, and any profit or loss must be included on the business owner’s personal income tax return. In contrast, a corporation is considered legally separate and distinct from its owners. The law considers a corporation to be an independent legal entity that is similar to an actual human being. Typically speaking, the owners of a corporation do not have personal liability for the debts or liabilities of the business or for any lawsuits that may arise during the course of business. Additionally, the corporation is always taxed separately from its owners.
There are many different factors that you must consider when you are in the process of choosing the legal form that will best suit your business needs. As your business grows, the advantages of the corporate business form will usually outweigh the disadvantages of incorporation. You should consult a lawyer to determine which form of business will be best for your particular situation.
This article covers Ontario and/or federal law.
Ontario Ministry of Government Services