Different Types of Business Structures In Canada

♦ Sole Proprietorship
A sole proprietor’s business structure is informal and the most common for small businesses. In the eyes of the law and tax authorities, the business and the operator are the same. The income generated from the sole proprietorship is the income of the proprietor himself and, therefore, liable for taxation in the personal income tax form. It is also used as a source of tax management where people adopt the sole proprietorship structure for their side businesses. It helps them in tax management, where the losses generated in the businesses can be used to reduce the income gained from other sources. Here, the proprietorship’s money and responsibilities are that of the proprietor himself. This also becomes a downside as the proprietor is personally liable for all the debts and liabilities of the proprietorship.

♦ Partnerships
A partnership is a similar structure where there is more than one proprietor. There is no legal structure for a partnership; however, they are governed by the terms and conditions laid down under the partnership agreement, which governs the sharing of revenues, expenses, and tasks, etc. Three types of partnerships exist in the Canadian system, viz. General partnership, Limited Partnership, and Limited Liability Partnership.

♦ Corporation
A corporation in Canada is similar to the concept of a company in other jurisdictions where the liability of the investors towards the debts and obligations of the corporation is limited, the investor can raise capital from the investors quite easily, and the tax payment can be optimized in many ways. However, a corporation involves elaborate paperwork and hefty sums of money for their incorporation purposes, governance, etc.

♦ Canadian Controlled Private Corporation (CCPC)
A corporation is said to be a CCPC if it meets all of the following criteria at the end of the tax year:
– It is a corporation that was resident in Canada and was either incorporated in Canada or resident in Canada from 18t h June 1971 to the end of the tax year.
– It is a private corporation.
– It is not under the direct or indirect control of one or more public corporations (other than prescribed venture capital corporation as defined under Regulation 6700 of the Income Tax Regulations)
– It is not under the control of one or more non-resident persons
– It is not under the control of a Canadian resident corporation whose shares are listed on a designated stock exchange outside of Canada
– It is not under the direct or indirect control of any combination of persons mentioned under the previous three conditions
– If a non-resident person owns all the shares of the corporation, by a public corporation (other than a prescribed venture capital corporation), or by a corporation whose shares are listed on a designated stock exchange were owned by one person, and such person does not own sufficient shares to control the corporation.
– There are no classes of shares of the corporation that are listed on a designated stock exchange
 
♦ Other private Corporations
A corporation is considered an Other Private Corporation if it meets all of the following criteria at the end of the tax year:
– It is not a public corporation
– It is resident in Canada
– It is not under the control of one or more prescribed federal Crown corporations (as defined in Regulation 7100)
– It is not under the control of one or more public corporations (other than prescribed venture capital corporation as defined under Regulation 6700 of the Income Tax Regulations)
– It is not under the control of any combination of corporations described under the previous two conditions.

♦ Public Corporation
A corporation is said to be a Public Corporation if it satisfies either of the following requirements at the end of the tax year:
– If it has a class of shares that are listed on a designated Canadian Stock Exchange; or 
–  It has been elected, or the Minister of National Revenue has designated it to be a public corporation. The corporation has complied with the conditions prescribed in Regulation 4800(1) of the Income Tax Regulations on the number of shareholders, the public trading of shares, the dispersal of the ownership of its shares, and the corporation’s size

♦ Corporation Controlled by Public Corporation
A corporation is said to be a Corporation Controlled by a Public Corporation if it is a Canadian subsidiary of a public corporation. This corporation does not qualify as a public corporation to determine the type of corporation when completing your T2 Corporation Income Tax Return.

♦ Other Corporation
Those corporations that do not fit into the criteria of the above mentioned corporations are said to be Other Corporations. Well-known examples of Other Corporations include General Insurers and Crown Corporations.