Understanding the Different Forms of Business in Ontario

Ontario Sole Proprietorship

A sole proprietorship refers to an individual who operates a business and is generally the simplest way to set up business. The sole proprietor is subject to unlimited liability – this means that the sole proprietor is fully responsible for all debts and obligations related to his or her business. A creditor with a claim against a sole proprietor would normally have a right against all of the sole proprietor’s assets, both business and personal.

If the proprietor carries on business under a name other than his or her own, the business name must be registered with the Ontario Ministry of Government Services (MGS) under the Business Names Act, and the prescribed fee paid. If the proprietor carries on business under his or her own name, without the addition of any other words, it is not necessary to register the business.

The business name registration is valid for five years, at which time it is necessary to renew the registration.

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Ontario Partnerships

A partnership refers to an agreement in which two or more persons combine resources to carry on business with a view to making a profit. A partnership/shareholders agreement should be drawn up, with the assistance of a lawyer in order to establish the terms of the business and to protect the partners/shareholders in the event of a disagreement or dissolution of the business. Partners share in the profits of the partnership according to the terms of the agreement.

Ontario General Partnership

In a general partnership, all the partners share the management of the business, and each partner is personally liable for all the debts and obligations of the business. Thus, each partner is responsible for and must assume the consequences of the actions of the other partner(s).

The names and addresses of all the partners must be registered with MGS and the prescribed registration fee paid. The partnership registration must be renewed every five years.

Ontario Corporations

A corporation is a “person” created by law that is capable of indefinite life and is separate from its shareholders or members. It owns property in its own name, acquires rights obligations and liabilities, enters into contracts and agreements, and has the capacity to sue or be sued, as would a natural person.

A business corporation is formed by one or more persons to carry on business for profit. The primary advantage of incorporation is limited liability. Additionally, a corporation is typically more attractive to investors and financial institutions, may set up pension plans and profit-sharing stock options, and does not cease operations upon the death of a shareholder or principal of the corporation.

A not-for-profit corporation is created for the purposes of carrying on charitable, religious, professional, sporting or patriotic objectives, without pecuniary gain. Generally, there are five types of not-for-profit corporations: 1) general such as ratepayers or trade associations; 2) sporting and athletic organizations; 3) social clubs; 4) service clubs; and 5) charities.

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