Canada Business Entity Formation | U.S. Taxpayers & FATCA – International Tax Lawyers
It is very common for U.S. businesses in US investors to travel up north to Canada in order to invest and expand their business – as well as vice versa. As a result, it is important for individuals to understand the general business entities and structures that can be formed within Canada.
While the structures in Canada are similar to the business structures in the United States, they are not identical. The following is a summary of the main different types of business structures for entities within Canada.
- Sole Proprietorship: Just as in the United States, the sole proprietor option is very common for small business owners, and those just starting out their business and may not need the overhead and cost of a formal business structure. With a sole proprietorship, the owner gets to keep all the profits, but may be personally liable for all the debts made against the business as well as possibly the owner – otherwise known as unlimited liability.
- Partnership: A partnership is an expansion of a sole proprietorship in that it involves at least two individuals who are operating together, without a formal business incorporation. When the main drawbacks of the partnership is that individuals will both be subject to personal liability as well as for the acts and omissions of the partner. Therefore, it is very important to consider these issues before forming a partnership
- If liability issue only concern against forming a partnership you may consider forming a limited partnership in which there is one general partner who is fully liable for the business, as well as one or more limited partners were only subject to liability up to the amount of their investment (no personal liability)
- Corporations: In Canada, a corporation can be formed at either the federal or provincial level, with there being various requirements and regulations according to type and location of the incorporation of the business. One of the greatest benefits of the Corporation is that it is a distinct legal entity apart from the owners – so that the actual owners of the corporation will not be held personally liable for the debts of the Corporation. Corporations have various rules and regulations, which normally includes having to hold meetings, appoint directors, pay annual fees, etc.
- Cooperatives: While cooperatives exist in the United States they are not as common as in Canada. A cooperative is formed through association of members, in which the members act together in terms of a common goal. For example, in the United States cooperatives are common in cities that have “co-op buildings.” Depending on the nature of the co-op, it will determine the positives and negatives to formation – with the major negative being that it generally requires a group consensus for many if not most decisions.