Starting a Business in Canada

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Flock Free Nation

No nonsense information on small business.

May 4, 2011 - 2 minute read - legal


There are basically three legal forms of business ownership; sole proprietorship, partnership, and corporation. In a partnership, you and your partners own the business and its assets directly. All business income would be reported and declared on each partner’s personal tax return. Each partner would take a percentage of the net income or net loss based on his or her share of the partnership. For example, if a partnership was shared 50/50, each partner would have to pay tax on half of the net income of the partnership. Because you and your partners are inseparable from your business, you each have full liability for the obligations of your business. A lender could make a claim against your personal assets for business debts. An exception to this is a limited partnership where the individual is not involved in management of the business. His or her liability would be limited. There are a number advantages and disadvantages to a partnership:


  • You have a partner. There is someone to assist with funding the start up of the business. You have someone to help you make the decisions. This can be especially useful if your strengths lie in different areas.
  • Taxes. You have the ability to split income and this may reduce your overall taxes payable. This can be an advantage, especially to members of the same family who are in business together.
  • Simplicity. Starting a partnership is about as simple as starting a sole proprietorship. Registering a partnership is fairly straightforward.


  • You have a partner. If you have not chosen your partner wisely, you might find that he or she is more of a hinderance and less of a help. For this reason, among others, you should have your lawyer draft a partnership agreement at the beginning of the partnership. It should describe what will happen in the event the partnership breaks up.
  • Liability. Like a sole proprietorship, you are fully liable for the business debts, even those your partners incur. If one of your partners signs for a debt on behalf of the partnership (even though you didn’t even know about it) you are still liable.

There is no one right form of business ownership. It is dependant on your personal situation. You should talk to your accountant and lawyer before making a decision. Their fees will be a small price to pay to ensure that you have the legal form of ownership that’s right for you.