Deciding on the type of entity you want to use is an important initial step in the process of starting a new business, as the type you choose dictates a number of different aspects of your business: control, liability, funding, taxation, etc.
Below we have compared the 4 main types of business entities:
Sole Proprietorships, Partnerships, Franchises, and Corporations. Contact Juriscorp Law Offices where we can help you better understand these different entities, analyse the advantages and disadvantages of each, and ultimately get you started with the one that best suits your business venture.
| Sole Proprietorship | Partnership | Franchise | Corporation | |
|---|---|---|---|---|
| Separate Legal Entity | No | No | Yes | Yes |
| Management & Control | Absolute ownership and control | Share in management or appoint managing partners vs. limited partners | Franchisor has control over the franchisee | Directors have control of the company but they are responsible for reporting to shareholders |
| Type of Liability | Unlimited – Personal assets will be at risk if there is a business failure | Unlimited or Limited – Depends on the type of partnership: General, Limited, Limited Liability, as well as the Partnership Agreement (PA) | Exposure to liability as you generally will be required to indemnify Franchisor in the Franchise Agreement (FA) | Limited – Corporate Veil – No personal liability for directors, officers, members, unless the veil is lifted |
| Formation Costs & Formalities | Simple & inexpensive | Lack of formalities and inexpensive to form – Draft and execute PA | Slightly more formal with formalities required – incorporating and entering into a written FA | Costly and requires multiple formalities: Incorporation, Minute Book, etc. |
| Transferability of Interest | Can be difficult as often linked to individuals expertise in that area of business | Difficult to sell / buyout partners interest; UNLESS, this has been expressly provided for in PA | Look for assignment provision in FA | Easy – sell your shares in the corporation |
| Financing & Property | Limited financing – draw from personal funds or by loans, no access to public funds; Assets are all solely owned | Limited financing – draw from funds of each partner, no public funds; Assets are jointly owned or pursuant to PA | Assistance to Franchisee from the Franchisor, but Franchisee is responsible for leasing space, purchasing supplies, etc. | Raise public funds through share issue.; All assets are owned by corporation |
| Duration & Termination | Duration is limited to the owner | Set out in PA – fixed term, notice, death, bankruptcy | Depends on FA | Company’s can be struck for failure to file returns, Court Order, voluntarily, etc. |
| Taxation | Personal tax rate | Personal taxes on profits earned | File Corporate Tax Return – Fixed rate | File Corporate Tax Return – Fixed rate |
| Regulatory Body | Nil | Partnership Act RSA 2000 | Franchises Act RSA 2000 | Business Corporations Act RSA 2000 |
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