Doing Business in Canada: Forms of Business Organization in Canada

by Bennett Jones LLP

Canadian business laws are well developed. Several different types of business structures are available in Canada. Each features unique advantages and disadvantages. 

Business Corporations

The corporation is the most common business organization in Canada. As a separate legal entity, the assets and liabilities of a corporation belong to the corporation, not to its shareholders.  Shareholders may receive dividends from the corporation and are entitled to receive the assets of the corporation upon liquidation once the corporation’s debts and other obligations have been discharged. 

Corporations in Canada can be incorporated federally under the Canada Business Corporations Act (CBCA) or provincially under comparable legislation with slight variations. A provincially incorporated corporation must first register or obtain an extra-provincial license to conduct business in another province. 

A corporation is created upon filing articles of incorporation that outline the rights, restrictions, privileges and conditions attached to each class of shares offered by the corporation. A corporation may issue as many shares and classes of shares as it likes, but one class must always offer full voting rights to the shareholders. A corporation also typically adopts by-laws governing various administrative matters. 

A corporation is a legal entity with the rights, powers and privileges given to it by its articles and by-laws and governing statute. Corporations created under the CBCA (or corresponding provincial statutes) have the powers of a natural person, with some exceptions. Consequently, a corporation may hold property, enter into contracts and sue and be sued in its own name. 

A corporation is managed by its directors. The CBCA requires that at least 25 percent of the directors of a corporation incorporated under the CBCA be Canadian residents. Boards with fewer than four directors must have at least one resident director. Most provincial business corporations legislation contains a similar requirement. The directors may appoint officers (who are not subject to residency requirements) to manage the daily affairs of the corporation. Both directors and officers can incur personal liability if they cause the corporation to act in breach of applicable laws and in some other circumstances. 

Branches of Foreign Corporations

A branch operation of a foreign parent company must be either licensed or registered in each province where it intends to operate. The tax consequences of setting up a branch office vary considerably between the provinces as does the liability faced by the parent company for the operations and conduct of the branch. 

Unlimited Liability Subsidiary Companies

The provinces of Alberta, British Columbia and Nova Scotia allow the Canadian subsidiary of a foreign-owned corporation to incorporate as an unlimited liability company (ULC). A ULC operates much like a partnership in that the shareholders of the ULC have unlimited liability. As an alternative to a branch office, a ULC may permit any losses of the Canadian corporation to be deducted by the foreign corporation. 


A partnership is the legal relationship between individuals carrying on business in common with a view to profit.  A partnership can be composed of individuals or two or more entities, including corporations or other partnerships. A partnership is not a separate legal entity. Generally speaking, partners are jointly and severally liable for any losses caused to non-partners, although this liability can be limited in some types of partnerships. Additionally, the income and losses of a partnership are considered to flow through directly to the partners for tax purposes. 

Partnerships are governed by provincial law. Some provinces require that partnerships be registered. There are three types of partnerships in Canada: general, limited and limited liability partnerships. 

General Partnerships

A general partnership features unlimited personal liability of each partner for the liabilities of the partnership, and the exposure of each partner’s personal assets in the event the partnership’s assets are insufficient to cover its obligations. Each partner may enter into partnership obligations that effectively bind the other partners. 

Limited Partnerships

Limited partnerships feature both limited and general partners.  The liability of a limited partner is limited to its investment in the partnership so long as it remains uninvolved in the management of the partnership. General partners are responsible for the management of the business and face unlimited personal liability just as they would in a general partnership. This arrangement is beneficial for passive investors looking to receive returns proportional to their initial investment. 

Limited Liability Partnerships

Most provinces permit limited liability partnerships for eligible professions. This arrangement limits exposure by shielding partners from liabilities arising from the acts of another partner not directly under their care or direct supervision. 

Joint Ventures

Two or more parties may form a joint venture for the purpose of carrying out a specific undertaking. In Canada, a joint venture may be conducted by separate corporations, general or limited partnerships, or simply by parties engaging in the joint ownership of assets. The parties pool capital and skill, but essentially establish a contractual relationship governing the business and providing for the distribution of profits. As a joint venture is not a legally recognized entity for tax purposes, its income and losses are taxed in the hands of each party to the joint venture. 

Parties intending to create a joint venture are advised to draft a joint venture agreement which expressly states that no partnership is being established and which explicitly sets out the parties’ respective rights and obligations.  Should the law decide that a partnership exists in substance, the parties’ joint venture agreement will be of no legal effect. 

Sole Proprietorships

In a sole proprietorship, business is conducted by an individual without incorporation. Sole proprietorships are generally simple and subject to minimal regulation. For example, registration may be required if a business operates under a name other than that of the proprietor and some categories of business require special licenses to operate. 

Profits earned by a sole proprietorship, as well as liability for any debts or other liabilities, are allocated to the sole proprietor. At law, no distinction is drawn between the proprietorship and the individual conducting it. The proprietor’s personal assets are at risk should the business become unable to meet its obligations. The sole proprietor is also liable for any tortious or illegal activities of the business although, to some extent, liability insurance can help reduce this exposure. 

The sole proprietorship model is well suited to many small enterprises as it avoids many of the expenses associated with incorporation. A sole proprietorship can be easily wound up at the end of its life or sold at the option of the owner. For tax purposes, a sole proprietorship provides some advantages. The owner can generally deduct business losses against the owner’s other types of income and avoid experiencing double taxation in the hands of both the business entity and the owner. 


While trust structures are used to conduct business in Canada, recent legislative changes have reduced some of the tax advantages that once made them popular among foreign investors.  Under Canadian law, a trust is not a separate legal entity. Trust assets are held by the trustee who is then liable for all obligations arising out of the trust’s operations. While trusts are generally structured in a manner intended to minimize investor liability, investors may be exposed to personal liability arising from the operation of the trust in certain circumstances. 


Canadian law provides considerable flexibility to foreign businesses seeking to establish a presence in Canada. The choice of an appropriate business structure in these circumstances requires careful planning and sound advice. Tax and liability considerations are usually key factors in this decision. 

Bennett Jones’ Corporate Commercial Group

The Bennett Jones Corporate Commercial Group advises a broad range of clients from start-ups to large TSX public companies, both domestic and foreign. Our expertise spans mergers and acquisitions, financings, governance, shareholder and partnership arrangements, executive/employee compensation arrangements, director protection (including indemnities and D&O insurance), commercial contracts of all kinds, international corporate structurings, enterprise formation and reorganization, and private equity/venture capital fund formation.

Written by:

Bennett Jones LLP

Bennett Jones LLP on:

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