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Choosing a Form of Business Ownership

Part 3: Corporations and Cooperatives

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Incorporation in Canada - forms of Canadian business ownership.

A corporation's Board of Directors meet.

Image (c) Chaos / Getty Images

The two other forms of business ownership that you'll want to consider when you're deciding how to legally structure your business are corporations and cooperatives.

A corporation (or limited company) is a distinct legal entity separate from its owners or shareholders. Therefore, no member of the company can be held personally liable for the debts, obligations or acts of the company. A shareholder is only liable for the unpaid portion of shares owned.

While this limited liability is an advantage, a corporation is the most expensive and difficult form of business ownership to set up and operate, especially as you may want to incorporate your business federally as well as provincially, an entirely separate procedure.

Federal incorporation gives a company the right to operate under its corporate name throughout Canada, while provincial incorporation gives a company the right to operate under its corporate name in a particular province.

How To Incorporate Your Business in Canada outlines the steps to form a corporation. For the incorporation procedures in different provinces, see the Incorporating a Business section of this website.

Corporations are certainly more expensive to administer, because they must file annual income tax returns with the Canada Customs and Revenue Agency, the provincial Ministry of Finance (and possibly other provinces in which the corporation does business).

But depending on the type of business you're starting and your plans for your business, forming a corporation could be your best choice. See 7 Reasons to Incorporate Your Business. My article Should You Incorporate Your Small Business? presents more of the advantages and disadvantages of the corporation form of business ownership.

A cooperative is a legally incorporated business owned and controlled by its members. A cooperative is able to enter into contracts under its corporate name. Liability for the individual members of a cooperative is limited to the extent of the value of shares held.

You can only legally structure your business as a cooperative if your business is organized as, and will be operated as, a cooperative according to the Canada Cooperatives Act. For more information on how a cooperative operates and how a cooperative differs from other businesses, see Industry Canada's Incorporation Kit for Cooperatives.

The legal form of business ownership you choose will affect everything from the administrative costs of setting up and operating your business, through your tax planning. It's a decision you need to make even before you choose a name for your business.

However, bear in mind that choosing a form of business ownership is not a decision that you can't alter when your circumstances change. Many small businesses, for instance, start out as sole proprietorships and then become corporations at a later date. So pick the form of business ownership that's right for your current circumstances, and review your decision as your business grows.

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