Incorporation vs DBA vs Partnership vs Non-profit – Help me choose
Consider 3 Questions Before Registering Your Business or Organization:
Choose Your Legal Structure
When starting a business or an organization, the first decision you need to make is to choose its legal structure. This legal structure will have an impact on:
Three Main Ways To Structure Your Business
Corporations
A corporation is a legal structure that is formed to operate a for-profit business that has a legal personality which is distinct from its owners (called shareholders) and the individuals who manage and run its affairs and business (called directors and officers). The creation of a corporation occurs following the proper filing of Articles of Incorporation with the government.
The principal advantages of a corporation are that it can exist for an indefinite period, beyond the lifetime of any one member or founder, and it also offers its owners the protection of limited personal liability. It also offers the most ownership flexibility which makes its easier to raise capital from investors. Some of its drawbacks include the higher costs of starting and operating a corporation due more compliance requirements (i.e. more government filings and paperwork).
Overall corporations are the preferred legal structure for businesses.
Sole Proprietorships (DBAs)
A sole proprietorship is owned by one individual and the business does not exist apart from the owner. It’s easy and quick to form, gives you complete business-making decision control, allows you to earn all the profits but you are also personally liable for all debts and obligations related to the business
Partnerships
A partnership is created when two or more people agree to share in the profit and losses of a business. It’s like a sole proprietorship but with 2 or more owners. A primary advantage is that the partnership is that profits or losses are "passed through" to partners to report on their individual income tax returns. A primary disadvantage is liability-each partner is personally liable for the financial obligations of the business.
Non-Profits
Non-profits are associations and organizations that are formed by individuals in order to pursue a common goal, and are often dedicated to advocating for a specific group or furthering a specific social cause operating for the benefit of others. In other words, its objective is not to make money for its owners or members. A non-profit organization uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization's members as profit.
It’s important to note that a non-profit organization needs to apply with the Canada Revenue Agency to qualify as a charity to be able to issue tax deductible receipts.
To see a Legal Structure Comparison Matrix click here.
Choose Your Jurisdiction
If you’ve decided on a sole proprietorship or partnership, you simply register in the province you are located in. If you have decided on a corporation, you need to choose between a provincial or federal corporation. There are advantages and disadvantages to both and there is no one best solution. Deciding which jurisdiction to choose may depend on the answers provided to these questions:
The Most Common Factors That Are Used To Decide Where To Incorporate
To see a Legal Structure Comparison Matrix click here.
Costs of Incorporation
Timelines for Incorporations
Protection de la dénomination sociale et de son utilisation
Directors Residency Requirements
Choose Your Business's Name
The last important decision to make when starting your business is choosing your business name. This name will become the business’ identity around which you will market your business products or services.
Many people already have a business name in mind when they decide to start a business. However, it’s important that the name is not already being used by another business to avoid confusion with existing businesses. Accordingly, government registries require that the proposed name is searched on the relevant government databases prior to filing a business registration or articles of incorporation application to ensure that the name you want to protect for your business is in fact available for you to use, and that the name is not deceptively similar to a name that is already registered. To ensure name availability, this requires searching the proposed name and other similar variations.
Once you have selected the legal structure and jurisdiction of your business it’s relatively easy to proceed with the searching for the name availability of your business. Name search reports can be done together with your business registration or incorporation order, or can be done beforehand. The final step is to complete the appropriate online application.