Legal Business Ownership Structures. Which one should I choose? (Part II)

What are the pros and cons of Canadian business ownership structures? (Part II)

Last week, we posted an article outlining the benefits and drawbacks of two of the four business ownership structures: sole-proprietorship and partnerships. This week, we’ll be exploring the remaining two Canadian business ownership structures: corporations and cooperatives.

*If you’re looking for a lawyer specializing in business law in Edmonton, click here.

Corporations

When a business decides to become a corporation (incorporate), it becomes a legal entity that is separate from its shareholders/owners. This legal curiosity is known as ‘Corporate Personhood‘, where the corporation has some legal rights and responsibilities enjoyed by real persons, such as the right to enter into contracts, be held legally liable for actions or pursue legal actions, etc. Unlike unincorporated associations of persons, shareholders and owners of a corporation do not share in its legal liability. As such, shareholders and owners are not personally liable for any debts or acts of the corporation.

Incorporation in Canada can be done on the federal or provincial level, each having its own unique requirements. As such, Corporate law is tricky and it is strongly advised that you get advice from a lawyer specializing in corporate law before you consider incorporating your business.

*If you’re considering incorporating your business, see this post here.

Pros:

• Separate legal entity from shareholders/owners
• Limited liability
• Set up to make ownership transfer simple
• Raising capital is often easier than with other business ownership structures
• Often are taxed less that unincorporated businesses

Cons:

• Corporations are strictly regulated
• It’s more expensive to set up a corporation than other business ownership structures
• Extensive corporate record keeping is required by law and must be filed each year with government agencies
• Depending on level of incorporation (federal or provincial), directors of the corporation may be subject to residency and/or citizenship requirements
•  Conflicts between shareholders and directors of the corporation can arise.

Learn more about new laws affecting Canadian corporations.

Cooperatives

The least common of the four Canadian business ownership structures is the cooperative. The cooperative is essentially special kind of corporation, where a group of people and/or businesses come together and pool resources to provide access to common social, cultural and/or economic needs. Though often set up as being not-for-profit, cooperatives can be for-profit organizations.

Pros:

• Owned and controlled by its members in a democratic fashion (each member is accorded a vote).
• Limited liability
• Clear profit distribution

Cons:

• Like corporations, cooperatives are required by law to keep extensive records.
• Raising capital can be more difficult than under other business structures, as there can be less incentive to invest further after the initial cooperative is set up.
• Can take longer to make business decisions, as participation of all members is required.
• Conflicts between members can stall business proceedings.

Additional Resources

• For more information on Canadian corporate business structures, click here.
• For more information on the cooperative business structure in Canada, click here.
• For more information on corporate law, see our article here.
• If you’d like to speak with an Edmonton-based corporate lawyer click here.

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