A Snapshot Of The Types Of Business Structures In Saskatchewan

Starting your own business is incredibly exciting, but it can be overwhelming to determine what type of business structure makes the most sense for you and your business.
Canada Corporate/Commercial Law

Starting your own business is incredibly exciting, but it can be overwhelming to determine what type of business structure makes the most sense for you and your business. Some considerations when choosing your business structure are the following:

  1. How do I want to be protected if something goes wrong? Some people might choose to run a sole proprietor with insurance/waiver for protection, while others pursue a corporation for protection.
  2. How will I report income the business receives?
  3. Am I running this business on my own or with others?

Each type of business structure handles the above considerations very differently, and what will work in one situation, may not be the best in another. Let's take a quick look at the different business structures available.

1. Sole Proprietorship

A sole proprietorship is the most common initial business structure chosen by an owner, as it is an inexpensive structure to create. The business has no legal separation from the owner – everything is in the owner's name and all profits of the business flow through the owner and are taxed in his or her hands as personal income. Depending on how successful the business is, this could have tax disadvantages to the owner by being taxed individually at a higher rate. However, even with tax considerations, many owners choose this structure when first starting their business to avoid high start-up costs (as in the fees to incorporate, file annual returns each year, and additional tax returns each year – more on this below) while they wait to see whether their business will be a success.

The largest risk with this structure is that all of the liabilities (e.g., a business starting loan) the business has are in the name of the owner and if the business is ever unable to pay back the outstanding liabilities, or if there is an award of damages against the business, the owner's business and personal assets may be used to satisfy these.

Another consideration is with respect to the business name. If the owner wishes to use a specific name, the owner should register that business name with the Saskatchewan Corporate Registry in order to protect the use of the name in Saskatchewan.

The owner should also consider the industry the business is in and whether there are any specific licensing requirements the owner should adhere to in order to operate the business.

2. Partnership

A partnership exists when two or more individuals (or corporations) decide to combine their resources and carry on business together with a view towards making a profit. Similar to a sole proprietorship, a partnership does not create a new legal entity and therefore, the profits (or losses) of the partnership flow through each of the partners to pay those amounts through their personal tax returns. There are a few different types of partnership structures that are used in different circumstances, such as:

  • General Partnership: where each partner is jointly liable for the debts of the partnership;
  • Limited Partnership: where a partner can contribute to the business without being involved in the operations of running the business; and
  • Limited Liability Partnership: this partnership is available to professional groups such as accountants, engineers, doctors, and lawyers (to name a few).

Similar to a sole proprietorship, it is required for a partnership to register its business name with the Saskatchewan Corporate Registry and to consider whether there are any licenses that need to be applied for before operating the partnership.

If individuals are interested in entering into a partnership together, it is always wise for the prospective partners to have a lawyer prepare a Partnership Agreement that establishes how the partnership is to run, how a partner is to bring additional resources to the partnership, how to protect the partners in the event of a disagreement, and how the profits/losses are to be allocated. The up front expense to prepare a good partnership agreement will save you time, money and stress later.

3. Corporation

Last, but not least, is a corporation, which involves the owners incorporating the business to create a new legal entity separate from the owners, who become the shareholders of the corporation. This new legal entity can own its own assets, pay its own taxes on the income the business receives, have its own employees, enter into agreements, borrow money and provide protection to its shareholders. In this type of structure, the owners as the shareholders do not own the business or assets of the corporation. They only own shares in the corporation.

Decision making for the corporation is conducted by the board of directors that is created for the corporation upon incorporating. Typically, a board of directors is composed of one or more individuals who meet regularly and who provide direction to the corporation's officers to run the company. These officers can hold positions such as President, Treasurer, or Secretary, to name a few. Something to keep in mind is that directors of a corporation, unlike shareholders, can be held personally liable if they fail to act in accordance with the relevant business corporation laws in Saskatchewan and Canada. This is something to be mindful of when considering who to appoint as a director of the corporation.

If you wish to name your corporation, in order to register with the Saskatchewan Corporate Registry, the name must have a distinct feature, a descriptive feature, and have a suffix added to the end, such as: "Limited", "Ltd.", "Incorporated", "Inc.", "Corporation", or "Corp."

There are a few different types of corporations one can have in Saskatchewan, such as:

  • Saskatchewan Private Corporation: can be formed by one or more individuals. A private corporation cannot sell shares or securities to the general public. Where none of the directors reside in Saskatchewan, the corporation must appoint an attorney pursuant to a Power of Attorney who resides in Saskatchewan.
  • Saskatchewan Public Corporation: issues shares and securities for public distribution and is listed on a designated stock exchange. Besides filing incorporation documents, a public corporation must file a prospectus with the Saskatchewan Securities Commission, must employ outside auditors and must distribute financial statements and general reports, among other obligations.
  • Non-profit Corporation: can be formed as a charitable corporation or as a membership corporation. If you have a non-profit organization that is not incorporated, you are an "association" and each member could be held personally liable for the activities of the group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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