Starting a Business in British Columbia, Which Legal Form Is Best for Your Business

When you start a business, you must decide on a legal structure for it. Usually, you’ll choose either a sole proprietorship, a partnership, or a corporation. There’s no right or wrong choice that fits everyone. Your job is to understand how each legal structure works and then pick the one that best meets your needs.

For many British Columbia small businesses, the best initial choice is either a sole proprietorship or—if more than one owner is involved—a partnership. Either of these structures makes especially good sense in a business where personal liability isn’t a big worry—for example, a small service business in which you are unlikely to be sued and for which you won’t be borrowing much money. Sole proprietorships and partnerships are relatively simple and inexpensive to establish and maintain.

British Columbia Sole Proprietorship

The simplest form of business entity in British Columbia is the sole proprietorship. If you choose this legal structure, then legally speaking you and the business is the same.

You can continue operating as a sole proprietor as long as you’re the only owner of the business. Establishing a sole proprietorship is cheap and relatively uncomplicated. While you do not have to file articles of incorporation, you may have to obtain a business license to do business under municipal laws.

Sole Proprietorship Personal Liability

A potential disadvantage of doing business as a sole proprietor is that you have unlimited personal liability for all business debts and court judgments related to your business.

Sole Proprietorship Income Taxes

As a sole proprietor, you and your business are one entity for income tax purposes. The profits of your business are taxed to you in the year that the business makes them, whether or not you remove the money from the business.

British Columbia Partnerships

If two or more people are going to own and operate your business, you must choose between establishing a partnership or a corporation. The best way to form a partnership is to draw up and sign a partnership agreement.

Beyond a written agreement, the paperwork for setting up a partnership is minimal—about on a par with a sole proprietorship.

Partnerships Personal Liability

As a partner in a general partnership, you face personal liability similar to that of the owner of a sole proprietorship. Your personal assets are at risk in addition to all assets of the partnership. In other words, you have unlimited personal liability for all business debts and court judgments related to your business. In a partnership, any partner can take actions that legally bind the partnership entity. That means, for example, that if one partner signs a contract on behalf of the partnership, it will be fully enforceable against the partnership and each individual partner, even if the other partners weren’t consulted in advance and didn’t approve the contract. Also, the partnership is liable, as is each individual partner, for injuries caused by any partner while on partnership business.

Partners’ Rights and Responsibilities

Each partner is entitled to full information— financial and otherwise—about the affairs of the partnership. Also, the partners have a “fiduciary” relationship to one another. This means that each partner owes the others the highest legal duty of good faith, loyalty, and fairness in everything having to do with the partnership.

Unless agreed otherwise, a person can’t become a new partner without the consent of all the other partners. However, in larger partnerships, it’s common for partners to provide in the partnership agreement that new partners can be admitted with the consent of a certain percentage of the existing partners—75%, for example.

Partnership Income Taxes

Income Taxes In terms of income and losses, the tax picture for a partnership is basically the same as that of a sole proprietorship. A partnership doesn’t pay income taxes. It must, however, file an informational return that tells the government how much money the partnership earned or lost during the tax year and how much profit (or loss) belongs to each partner.

British Columbia Corporations

If you’re concerned about limiting your personal liability for business debts, you’ll want to consider organizing your business as a corporation.

The most important feature of a corporation is that, legally, it’s a separate entity from the individuals who own or operate it. You may own all the stock of your corporation, and you may be its only employee, but—if you follow sensible organizational and operating procedures—you and your corporation are separate legal entities.

Limited Personal Liability One of the main advantages of incorporating is that, in most circumstances, it limits your personal liability. If a court judgment is entered against the corporation, you stand to lose only the money that you’ve invested. Generally, as long as you’ve acted in your corporate capacity (as an employee, officer, or director) and without the intent to defraud creditors, your home, personal bank accounts, and other valuable property can’t be touched by a creditor who has won a lawsuit against the corporation.

The limited liability feature of corporations can be valuable, protecting you from personal liability for:

• debts that you haven’t personally guaranteed, including most routine bills for supplies and small items of equipment, and
• injuries suffered by people who are injured by business activities not covered adequately by insurance. Also, for a business with more than one owner, incorporating can offer a great deal of protection from the misdeeds or bad judgment of your co-owners. In contrast, in a partnership, as noted above, each partner is personally liable for the business related activities of the other partners.

Corporations Income Tax

All corporations—including nonprofit organizations, tax-exempt corporations, and inactive corporations—have to file a T2 return for every tax year, even if there is no tax payable.

When and how do corporations pay income tax?

Corporations have to pay income tax in monthly or quarterly installments when the total of Part I, Part VI, Part VI.1, and Part XIII.1 taxes payable for either the previous year or the current year is more than $3,000. The balance of tax the corporation owes for a tax year is due within either two or three months of the end of that tax year, depending on the circumstances of the corporation. Interest and penalties apply to late payments. To be on time, you have to make installment payments and other payments on or before the due date by using one of the several methods of making online payments:

Pay online by using your financial institution’s online banking or telephone banking services;
Pay online by using CRA’s My Payment service at;
Pay by setting up a pre-authorized debit agreement using the My Business Account service at You can also pay in person at your financial institution in Canada. To do so, you have to use a remittance form, which you can request by logging in to My Business Account.