Understanding Your Business Structure: Sole Proprietorship, Partnership, or Incorporation in Ontario
- AVGilbert
- Feb 28
- 2 min read
In October of 2022, I had the wonderful opportunity of speaking at (@nikki_the_connector) Nik-Keisha Moodie's Workshop and Networking Event - BUILDING A DREAM: The Key To Entrepreneurship. At this event I briefly spoke on the three main Business models in Ontario and answered frequently asked questions on a panel. But here are the main takeaways in case you missed it!
Sole Proprietorship
A sole proprietorship is the simplest and most common type of business structure. It is a business owned and operated by a single individual. As a sole proprietor, you are personally liable for all of the business's debts and obligations. This means that if your business is sued, your personal assets, such as your home and car, could be at risk.
Advantages of a Sole Proprietorship
Easy and inexpensive to set up.
You have complete control over the business.
All profits are taxed as personal income.
Disadvantages of a Sole Proprietorship
Unlimited personal liability.
Limited access to capital.
Difficult to transfer ownership.
Partnership
A partnership is a business owned and operated by two or more people. Partnerships can be general or limited. In a general partnership, all partners are liable for the business's debts and obligations. In a limited partnership, there are two types of partners: general partners and limited partners. General partners are liable for the business's debts, while limited partners are only liable for the amount of money they have invested in the business.
Advantages of a Partnership
Shared resources and expertise.
Easier to raise capital.
Tax advantages.
Disadvantages of a Partnership
Unlimited personal liability for general partners.
Potential for disagreements and conflicts.
Shared decision-making can be slow and cumbersome.
Incorporation
A corporation is a legal entity that is separate from its owners. This means that the corporation is liable for its own debts and obligations, not the owners. This is known as limited liability.
Advantages of Incorporation
Limited liability.
Easier to raise capital.
Tax advantages.
Perpetual existence.
Disadvantages of Incorporation
More complex and expensive to set up and maintain.
Double taxation.
Less control over the business.
Which Business Structure is Right for You?
The best business structure for you will depend on your individual circumstances. Consider the following factors:
Your risk tolerance.
Your financial goals.
Your need for capital.
Your desire for control.
Your tax situation.
It is important to consult with an accountant or lawyer before making a decision about your business structure. They can help you understand the pros and cons of each option and choose the one that is right for you.
Additional Resources
If you haven't already, I highly suggest you follow Nik-keisha's pages for updates on more workshops and networking events as they are extremely informal, professional and FUN!
I hope this post has helped you understand the difference between a sole proprietorship, partnership, and incorporation in Ontario. If you have any questions, please feel free to leave a comment below.
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