Information to help you complete your registration checklist

Business and organization structures (Legal Entities)

• Sole proprietor (self employed)
• Partnership
• Limited partnership or Limited liability partnership (LLP)
• Corporation
• Joint Venture
• Registered Charity
• Non-profit organization (NPO)

Sole proprietorship (self employed)

A sole proprietorship is an unincorporated business owned and managed by one individual.

Sole proprietors are fully responsible for all debts and obligations related to their business. A creditor with a claim against a sole proprietor would normally have a right against all business and personal assets, meaning the creditor could seize some of your personal belongings. This is known as unlimited liability.

Characteristics of a sole proprietorship:

• business not incorporated;
• the owner has sole responsibility for decision making;
• the owner receives all profits and takes responsibility for all losses that are incurred by the business; and
• the owner is considered self-employed and reports the business income on a T1 Individual Income Tax Return.

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Partnership

A partnership exists when each member shares in the management of the business and has personal liability for the business debts and obligations. Each partner is responsible for the actions of the other partner(s). The partnership itself is the business that receives a GST/HST number not each partner.

Characteristics of a partnership:

• association between two or more persons;
• each partner is co-owner of the business;
• each partner contributes money, property and/or skills;
• each partner is entitled to a share of the profit/losses based on the partnership agreement; and
• each partner is considered self-employed and reports their share of income/loss on a T1 Individual Tax and Benefit Return.

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Limited partnership or Limited liability partnership (LLP)

A limited partnership exists when some are partners and others are limited partners. Partners will operate the business on a day-to-day basis. The limited partners contribute capital, take no part in control or management, and have limited liability for debts.

A limited liability partnership (LLP) has some characteristics of a partnership and a corporation. Normally, professionals such as accountants and lawyers form LLP's. All partnerships should draw up an agreement with the assistance of a lawyer. This agreement is to protect all partners in the event of a disagreement, death of a partner, or closure of the business.

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Corporation

A corporation is owned by shareholders. No shareholder of a corporation is personally liable for the debts, obligations or acts of the corporation. However, directors could be held personally liable for the debts of the corporation.

A corporation can incorporate at either the federal, provincial, or territorial level.

and is identified by the terms "Limited", "Ltd.", "Incorporated", "Inc.", "Corporation", or "Corp.". Whatever the term, it must appear with the corporate name on all documents, stationary, and so on, as it appears on the incorporation document.

Characteristics of a corporation:

• it is its own legal entity;
• businesses of all sizes can be corporations;
• shareholders cannot claim any loss the corporation sustains;
• shares can be bought and sold without affecting the existence of the corporation; and
• it must file a T2 Corporate Income Tax Return.

If you want to incorporate your business, depending on whether you want to incorporate provincially, territorially, or federally, you should contact your provincial/territorial incorporating authority or Industry Canada-Strategis.

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Joint Venture

A joint venture is an arrangement where two or more persons work together in a limited and defined business undertaking. Ordinarily, all participants of the joint venture contribute assets, share risks, and have mutual liability.

A joint venture agreement is not a continuing relationship between participants. For example, the venture may be for one specific business project. Once the project is completed, the joint venture ceases to exist.

Generally, participants in a joint venture name one participant to be the "joint venture operator". This person accounts for the day-to-day operations of the joint venture. The BN of the operator is used.

The operator can add GST/HST and payroll accounts to his/her BN if he/she wants to account for the joint venture activities separate from other activities.

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Registered Charity

A registered charity is an organization established and operated for charitable purposes, and must devote its resources to charitable activities. The charity must be resident in Canada, and cannot use its income to benefit its members.

A charity also has to meet a public benefit test. To qualify under this test, an organization must show that:

• its activities and purposes provide a tangible benefit to the public;
• those people who are eligible for benefits are either the public as a whole, or a significant section of it, in that they are not a restricted group or one where members share a private connection, such as social clubs or professional associations with specific membership; and
• the charity's activities must be legal and must not be contrary to public policy.

To register as a charity, the organization has to be either incorporated or governed by a legal document called a trust or a constitution. This document has to explain the organization's purposes and structure.

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Non-profit organization (NPO)

A non-profit organization (NPO) is a club, society, or association that's organized and operated solely for:

• social welfare
• civic improvement
• pleasure or recreation
• any other purpose except profit.

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