Starting a Business: Forms of Business Ownership

A Comparison of the Different Forms of Business Ownership in Canada

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Choosing the right form of business ownership is important because the form of ownership you choose will determine how your business is organized, how the money that flows in and out of your business is handled, and how your business is taxed.

Use this comparison of the four types of forms of business ownership to help you choose the best form of business ownership for you when you're starting a small business in Canada.

Form of Business Ownership Choices

There are essentially four forms of business ownership in Canada:

  1. the sole proprietorship,
  2. the partnership,
  3. the corporation
  4. the cooperative.

Let's look at the main advantages and disadvantages of each of these forms of business ownership.

The Sole Proprietorship



  • Unlimited personal liability as there is no separation between the business and the owner.
  • Can be hard to raise capital via debt or equity financing (banks are reluctant to lend to sole proprietorships and there are no shares to sell to equity investors).
  • Difficult to sell.

The Partnership


  • Shared risk.
  • Shared management.
  • Tax reporting is simple (does not require a separate corporate tax return).


  • Risk of conflict between partners.
  • Either partner can be held responsible for business debts incurred by the other partner.
  • Shared decision making.
  • Buyouts can be problematical (when one partner wishes to quit the business).

The Corporation


  • Limited liability - owners are not responsible for company debts or obligations.
  • Easier to raise capital from investors or financial institutions.


  • Most expensive form of business to set up and maintain.
  • Involves a lot of ongoing paperwork (must file annual business tax returns).

The Cooperative


  • Owned and controlled by its members.
  • Limited liability.


  • Decision making can be slow.
  • Risk of conflict between members.

To learn more about the advantages and disadvantages of each form of business ownership, read Choosing a Form of Business Ownership.

If you are considering forming a partnership, you'll want to read 10 Questions Good Partnership Agreements Need to Answer.

More on Incorporation

If you are thinking of choosing incorporation as your form of business ownership, you'll also want to read:

Should You Incorporate Your Small Business?

How to Incorporate Your Business in Canada

Getting Your New Corporation Up and Running

Forms of Business Ownership and Business Registration

The form of ownership you choose determines the business registration procedure you need to follow.

Registering a sole proprietorship is easier and more inexpensive than registering a corporation, but as you see from the advantages and disadvantages above, there can be compelling reasons why you would want to go to more trouble and expense when you are setting up your new business.

The most common reason to incorporate a business from its inception rather than just setting up a sole proprietorship or partnership to start is the issue of liability; as sole proprietors are their businesses, legally, whatever debts or liabilities a business acquires are also the individual owner's.

It's not the only reason that initial corporation may be preferable, though; see 7 Reasons to Incorporate Your Business.

All businesses in Canada must register their business names in their respective provinces or territories except for sole proprietorships that use only the owner's legal name with no additions (except in Newfoundland and Labrador where no sole proprietorships or partnerships need to register their names). (See Do I Need to Register a Business Name?)

For information on how to register a business name in a particular province, see:

Business Registration in British Columbia

Business Registration in Alberta

Business Registration in Ontario

Business Registration in Quebec

Business Registration in Nova Scotia

Back to > Steps to Starting a Business

See also:

How to Choose a Winning Business Name​

7 Small Businesses You Don't Want to Start

How to Write a Mission Statement

Why Write a Business Plan?