Choosing your business type in B.C.

Sole Proprietorship

A sole proprietorship is the simplest form of a business, in which you and your company are considered a single business structure. As a sole proprietor, you do whatever is required for successful operation of your business. You make decisions, receive all profits and claim all losses. Although you may hire employees to assist you, you usually manage the business yourself.

Advantages

Among its advantages a sole proprietorship is simple and inexpensive to set up, and simple from a tax standpoint-it's part of your personal taxes.

Disadvantages

There are disadvantages to a sole proprietorship:

• Most importantly, you have unlimited personal liability
• You are personally responsible for the business' financial and legal liabilities
• Profits will be taxed at your personal income tax rate, which is typically higher than a corporate tax rate
• If you need to raise capital, you will need to rely solely on your personal resources and credit-worthiness

General Partnership

In a general partnership you combine your resources with others to make a profit. Each partner contributes money, property or skills. The profits or losses are divided among the partners based on each partner's share. Partners are usually active in business operations, and they may employ others who are not partners to help run the business.

Advantages

A general partnership is more time consuming and expensive to set up and run than a sole proprietorship, but easier and less costly than a corporation. It also has a simpler tax structure, partners report income and expenses on their personal tax returns.

Disadvantages

The main disadvantage of a general partnership is that partners have unlimited personal liability.

• They are personally responsible for all of the business' financial and legal liabilities, and partners can legally bind one another without prior approval.
• Profits are taxed at the personal rate, which is typically higher than a corporate tax rate.
• There are also fewer options for raising capital than a corporation
• The partnership will need to rely on partners' personal resources and credit worthiness.

Limited Partnership

Limited partnerships are formed by two or more individuals or corporations. Each partner contributes money, property, or skills. They usually employ others who are not partners. Unlike a general partnership, a limited partnership has legal status separate from its partners, and a finite life. They are often used in real estate development and in the film industry. There are 2 types of partners in a limited partnership general and limited. The general partner manages day to day operations, and has unlimited liability. The limited partners are typically investors who do not have day-to-day management responsibilities. Their financial and legal liability is limited to the amount invested. The profits (or losses) are divided among the partners, with general partners usually earning a larger share.

Advantages

Partners report income and expenses on their own tax returns. Limited partner ownership interests can be transferred, similar to shares in a corporation. It can be easier to raise capital than it might be with other business structures.

Disadvantages

A limited partnership is more time consuming and expensive to set up than a general partnership, and requires a detailed partnership agreement to avoid possible conflict between shareholders and directors.

Limited Liability Partnership

Limited liability partnerships (LLPs) are formed by two or more individuals or corporations. Each partner contributes money, property, or skills. The profits or losses are divided among the partners based on each partner's share. Like a corporation, LLPs have legal status separate from its partners, and can be maintained over many years. LLPs are frequently used by professionals such as doctors, lawyers, accountants, architects and engineers.

Advantages

The main advantage of an LLP over a general partnership is that the liability of limited partners is capped. And, unlike a general partnership, limited partner ownership interests can be transferred, similar to shares in a corporation. Because partners report income on their own returns, they have the opportunity to claim losses against other sources of income. It can be easier to raise capital than it might be with other business structures.

Disadvantages

The main disadvantage is that general partners in an LLP have unlimited personal liability.

• They are personally responsible for all of the business' financial and legal liabilities.
• An LLP is also more time consuming and expensive to set up than a general partnership, as a detailed partnership agreement is required to avoid possible conflict between shareholders and directors.

BC Corporation

A BC corporation is a legal business structure, separate and distinct from its owners. When a company is incorporated, it acquires many of the legal powers of an individual. It can, for example, own real estate, hold investments, acquire assets, go into debt, enter into contracts, sue or be sued. If incorporation makes sense, and you do not have plans for employees or locations outside the province, incorporating as a BC corporation is probably your best choice.

Advantages

There are several advantages to incorporation:

• As a shareholder your liability is limited
• Corporations generally benefit from lower tax rates than the rates applied to sole proprietors or partners
• It's easier to raise capital for a corporation than for other business structures
• There are tax advantages

Disadvantages

There are some disadvantages as well:

• Corporations are more closely regulated than sole proprietorships and partnerships
• Losses in a corporation cannot be claimed by shareholders and can only be offset against earnings in the corporation
• A corporation is more complex and costly to set up and run than a sole proprietorship or partnership

Federal Corporation

A federal corporation is a legal business structure, separate and distinct from its owners. When a company is incorporated, it acquires many of the legal powers of an individual. It can, for example, own real estate, hold investments, acquire assets, go into debt, enter into contracts, sue or be sued. If incorporation makes sense, and you expect to have employees or locations outside British Columbia, incorporating federally is probably your best choice.

Advantages

There are several advantages to incorporation:

• As a shareholder your liability is limited
• Corporations generally benefit from lower tax rates than the rates applied to sole proprietors or partners;
• It's easier to raise capital for a corporation than for other business structures
• There are tax advantages

Disadvantages

There are some disadvantages as well:

• Corporations are more closely regulated than sole proprietorships and partnerships
• Losses in a corporation cannot be claimed by shareholders and can only be offset against earnings in the corporation
• A corporation is more complex and costly to set up and run than a sole proprietorship or partnership

Benefit Company

A benefit company is a for-profit company that commits to promoting one or more public benefits. Public benefits must have a positive effect for people other than company shareholders, for example communities, organizations, or the public at large. The benefits may be artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological. Like a BC corporation, the rules of the Business Corporations Act apply to benefit companies. A benefit company, however, must have a 'benefit statement' in its Notice of Articles, and a 'benefit provision' in its Articles of Incorporation. The benefit provision states the public benefits, commits to promote those benefits, and outlines how the company will conduct business in a responsible and sustainable manner. A benefit company must also publish and post an annual benefit report, and the company's directors must balance their duty to act in the best interests of the company with their duty to promote the company's specified public benefits.

Advantages

A benefit company has all of the advantages (e.g., limited liability, lower corporate tax rates) of a BC corporation. The main advantage of a benefit company is that it actively contributes to the public good, which may lead to greater employee engagement, and enhance the company's reputation.

Disadvantages

A benefit company has all the disadvantages (e.g., higher setup and ongoing costs) of a BC corporation.

Community Contribution Company (CCC)

A Community Contribution Corporation ('CCC' or also known as a 'C3') is a hybrid entity that bridges the gap between for-profit and non-profit organizations. A CCC is similar to a BC corporation, with a Board of Directors and shareholders. Like a regular corporation it is a legal entity, separate and distinct from its owners. It can, for example, own real estate, acquire assets, go into debt, and enter into contracts. Similar to a non-profit, a CCC is set up to achieve a social purpose. It must allocate at least 60% of its profit toward that purpose, and can pay out up to 40% of profits to investors.

Advantages

There are several advantages to a CCC:

• It provides an opportunity for investors to receive a return while fulfilling a social purpose
• It benefits from lower tax rates than a sole proprietorship or partnership
• It's easier to raise capital for a CCC than for a sole proprietorship, partnership or non-profit
• Shares can be transferred
• It enjoys name protection

Disadvantages:

There are disadvantages as well:

• CCCs are more closely regulated with more reporting requirements than proprietorships, partnerships and regular corporations
• CCCs are more complex and costly to set up and run than a proprietorship, partnership, or regular corporation
• Salaries paid to management and staff are restricted
• Potential returns to shareholders are restricted 
• CCCs are not eligible for grants, donations or income tax exemptions and do not have the ability to issue tax receipts

Cooperative Association

In B.C., a cooperative association (co-op) is an incorporated membership organization owned and operated by the people who use and benefit from its services. Co-ops create jobs and support communities by offering a variety of products and services including food, housing, and health care. Once incorporated, a co-op gains independent legal status separate from its members. As a legal business structure, a co-op can enter into contracts or take on debt in its own name with legal rights and obligations similar to those of an individual. Incorporating limits the liability of a co-op's members.

Advantages

There are several advantages to a co-op structure:

• Members provide multiple sources of investment capital
• Managerial and operational duties are shared
• There are potential cost savings for members
• A co-op can build a sense of community through shared purpose

Disadvantages

The main disadvantages of a cooperative association structure are:

• It is often more complex and costly to set-up than a corporation
• Decision-making can sometimes be slow or challenging
• It can be difficult to raise large amounts of capital

 Get help

Contact BC Registries and Online Services with questions about:

• Choosing a business type
• Naming your business
• Registering your business

BC Registries and Online Services does not provide business or legal advice. The helpdesk is available 8:30 am to 4:30 pm Monday to Friday.

Call: 1-877-370-1033 Email: BCRegistries@gov.bc.ca​