Use the right legal entity for your business


Use the right legal entity for your business.

In Canada, you have three basic types of business entities: sole proprietor, partnership and incorporation. Each has advantages and disadvantages;

Sole Proprietor:

A sole proprietor is the easiest and cheapest form of business. There is no required documentation or registration as there isn’t a business entity to set up. It is an individual acting as a business. You can set up a business account at a bank and operate under a trading name. The downside is that you are personally responsible for any liabilities (CPP, EI, other employee deductions, lawsuits) the business incurs, and all revenue you earn is taxed directly to you.


A partnership is similar to the sole proprietor, but as the name implies, there are partners involved. Partnerships involve two or more people carrying on business with the object of making a profit. In Alberta, the provincial Partnerships Act governs business partnerships. Partnerships can be complicated and need to be carefully planned for them to succeed.


A corporation (the incorporated company) is what most people think of when they think of a company. Reduced liability to the owners is one of the advantages of using a corporation. The downside is the additional regulation, taxation, and paperwork that incorporation entails. There are two basic types of incorporation, public and private, and two levels of government controlling incorporation.

Public Corporations:

Public corporations have their shares traded on a stock exchange. Few entrepreneurs will have the financial capital or requirement to go this route.

Private Corporations:

Most new businesses are incorporated as Canadian Controlled Private Corporations (CCPC). These are businesses with a minimal number of shareholders and are often only owned by a few people working in the company. There are, however, large privately controlled corporations, but the focus of this blog is small to medium-sized companies.

Provincial Government:

Provincial registration is generally straight forward, but the requirements vary based on which province you are incorporating your business. Incorporation in Alberta is straight forward. You can download incorporation forms and take them to a local registries office. At the registry office, you will need to pay for a NUANS (corporate name) search, which can take a few days. Assuming the corporate name you’ve chosen isn’t already used by another company, the registry office will file the registry papers with the Alberta government, who will issue your certificate of incorporation.

Federal Government:

Registering as a federally incorporated company has advantages and disadvantages. You can set up your registered office anywhere in Canada, you can use your corporate name across the country, and your company will be recognized as a Canadian entity. Federal registration is the least used for the various options for setting up a company. It is more involved than incorporating in your home province.

Federal incorporation involves a different set of rules than provincial registration. These include language requirements, human resources and working hours. Unless you are operating across the country or in federally regulated industries (telecommunications, airlines, etc.), most entrepreneurs are better off with one of the other options.

Municipal Governments:

Municipalities often have requirements for a business to obtain licenses and register. They can also have restrictions on where a company can operate.




References / Useful Links:

Federal Incorporation:

List of Licences and Permits: Bizpal

Alberta Incorporation:


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