Legal Forms of Business Ownership

There are three basic forms of business.

1. Sole proprietorship
A sole proprietorship is a business run by a single person.
2. Partnership
Partnership is a business structure owned by two or more partners. In this, partners are the
only beneficiaries of the firm’s profits. There are three types of forms in partnerships:
- General Partnership – a partnership consisting two or more individuals who share the
profits and liabilities of the business. Each partner is fully personally liable for firm’s
loss or debts.
- Limited Partnership – a partnership consisting of one or more general partners who
have unlimited liability, and one or more limited partners who have limited liability.
- Limited Liability Partnership (“LLP”) – a hybrid form of partnership consisting
traditional partnership and a company’s characteristics. An LLP is considered as
separate legal entity and therefore, an LLP member’s liability is limited.
3. Corporations
A business entity that legally exists separately from its owner(s). The owners of a corporation
are called shareholders. Their percentage of ownership in the business is represented by their
corporate stocks or shares.
“Forms of Business Ownership – Fundamentals of Business: Canadian Edition. (n.d.).
Pressbooks.
https://ecampusontario.pressbooks.pub/businessfuncdn/chapter/ownershipforms/.”
“How Do I Choose Between the 4 Major Business Organization Forms? (n.d.). Chicago
Business Lawyer. https://www.rifkindpatrick.com/Blog/2015/November/The-4-Major-
Business-Organization-Forms.aspx”
Determining Optimal Legal Form of a Business

To select the optimal legal form for a business. There are three legal forms. They are: -
A. Sole Proprietorship
B. General Partnership
C. Corporation
However, there are some pros and cons of these business which are mentioned below: -
A. Sole Proprietorship:
In this business the owner is single and to establish a sole proprietorship there
is no need to hire professionals to file required government document to commence
the business. Moreover, it is single entity which is responsible or liable for not only
profit but also loss. Even though sole proprietorship might look as the ideal form of
business, there are some merits and demerits associated with it.

Some of the advantages are:

1. Easy to form:
In sole proprietor business, it is very easy to establish as it needs minimal paperwork
and red tape are associated with this type of business format.

2. Least expensive to set up:

In this business, the cost which incurred in this business is very economical as sole
proprietor needs to pay economical business license fee and small amount of business
taxes depending upon the location in which the business is established.

3. Easy to dissolution:
The sole proprietor business is not only easy to set up but also it is easy to terminate
as in this business there is no need to wait for any formal date or any formal
paperwork.

4. Tax-free asset withdrawal:

In the sole proprietor business, an owner can withdraw asset from the business with
less taxes.
Some of the disadvantages are:

1. Limited ability to raise capital:

In the sole proprietorship until the business grow and has gained a good credit rating,
a sole proprietorship must face difficulties to get business loans to grow the business.
So, it takes time to raise capital in this business.

2. Unlimited personal liability:

As a sole proprietor, an owner is responsible for all the debt incurred by business. As
law says a sole proprietor and business is one. So, whatever the value of debt will
incur the owner will be liable to pay the debt no matter what the value is.

3. Termination of business upon owner’s death:

As business and sole proprietor is a single entity, so in case of owner’s death the
business will be terminate once the owner dies.

B. General partnership:
In this form of business, a general partner are two or more people who invest money
and jointly own a business and do day to day activities like managing, financing, and
making decisions. Moreover, every partner has right to act on behalf of a business
without asking the permission from other partners.

Some advantages of general partnership are:

1. Easy to establish:
A partnership business is also established easily like sole proprietorship as in this
business also there is no formal paperwork or waiting date or fixed date to establish.
Moreover, to be partner, it is necessary for a partner to enter into the agreement of
partnership which are referred as partners together.

2. Synergistic:
In partnership business, there should be trust among the partners they have to be
Transparent. There is no place for hidden agendas or breaking trust of any partners in
this business.
 3. Direct rewards:
In this business, partners can share profit as direct rewards by sharing equally profit.

Some of its disadvantages are:

1. Unlimited personal liability for the firm’s debt:

In case of unlimited personal liability, it is similar as sole proprietorship that partners
have personal liability for debts, taxes, and other claims against the partnership.

2. Business terminates upon death of a partner:

Under partnership act if any partner will die among the two or more partners. The
business will terminate but if there is agreement among the partners that they will
continue the business if any partner die then the business will survive with rest of the
partners.

3. Disputes in partnership:
In partnership business, every partner have their own specific role in the business and
if in this case two partners have different opinion and rest of the partners have distinct
opinions or disagree with the others partners point of view , in this case dispute arise
among the partners.

C. Corporation:
Corporation is a kind of business in which more group of masses are required along
with more formal paperwork and it is more formalized. Moreover, it is separate legal
entity. Apart from this. The ownership in this business is divided according to shares
of stock they own.

Some advantages of corporation are:

1. Liability is limited to the amount owners have paid for their share of stock:
In the corporation, a shareholder has a limited liability to pay the debt of the
company. A shareholder is liable to pay the debt up to the value of a share he or she
owns in the company.
 2. Easy availability of capital:
In corporation, it is very easy to raise capital by collecting money from public which
then use in company as a lakh of share. Moreover, each share’s price is come up with
very small amount which give assistance to people to buy shares of the company. So,
it becomes easy to raise capital for company by dividing into smaller unit.

3. Corporations have perpetual existence:

The most imperative advantage of the corporation is that corporation never comes it
exist beyond the deaths of board of directors, managers, and business executives. It
only happens when board of director and managers decide to do so. Thus, there is no
issue to invest money in the corporation as if there is any unexpected death occurs
somebody else will take place of him or her.

Some disadvantages of corporation are:

1. Complex process:
To establish corporation, it is difficult task to set up as it need to take permission
initially from lots of regulatory authorities. Moreover, there are lots of norms which
owner must fulfil before establishing the corporation. Hence, it takes too much time
which really demotivate the founders.

2. Double taxation:
In the corporation, there is a chance of double taxation. Firstly, a corporation must
pay flat corporate tax on profit. Secondly, a corporation must pay tax when
shareholders received dividends.
“Phillips, L. (n.d.). How to Determine the Legal Structure of Your Business | Edward
Lowe Foundation. Edward Lowe Foundation. https://edwardlowe.org/how-to-
determine-the-legal-structure-of-your-business/”
 COMPARATIVE CHART OF BUSINESS STRUCTURE TYPES

CHARACTERISTIC SOLE GENERAL LIMITED INCORPORATION

PROPRIETORSHIP PARTNERSHIP PARTNERSHIP

Liability Unlimited Unlimited Unlimited/limited Limited

Continuance No No No Yes

Cost of set-up Least expensive Moderate Moderate Expensive

Accounting fees Minimal Moderate Moderate Moderate/

expensive;

Bookkeeping/ Minimal Moderate Moderate/ Extensive

Records extensive

Regulation Little Moderate Moderate High

Jurisdiction Provincial Provincial; Provincial Provincial and/or

Federal

Start-up capital Personal Combined Combined Personal savings,

savings, loan, etc. personal personal loan, Venture or
resources resources Equity capital
Raising capital Difficult Difficult Less difficult Less difficult

Tax filings Personal only Personal only Personal only Personal and
corporate

“Selecting a Business Structure in Canada. (n.d.). Newbusinessnow.

https://www.newbusinessnow.com/article/selecting-a-business-structure-in-canada/”
 Business Ownership in Alberta

There are six kind of business ownership in Alberta:

1. Sole Proprietorship
2. Alberta Partnership
3. Alberta Limited Partnership
4. Alberta Limited Liability Partnership- This class of partnership is close to a regular
partnership, except there is liability protection.
5. Alberta Corporations
6. Alberta Extra Provincial Corporations - If an organization was shaped in another area
or country, but it can be enlisted to carry on business in Alberta.

The cost to establish different forms of business ownership along with the renewal fee
in Alberta:
Forms of business ownership Cost to establish Renewal fee* (if
ownership any)
Sole proprietorship $60 $60
Alberta partnership $60 $60
Alberta limited partnership $60 $60
Alberta limited liability $60 $60
partnership
Alberta corporations $445 $445
Alberta extra provincial $445 $445
corporations

*Renewal Fee:
The business licenses are renewed annually, and a renewal notice is sent to the address on
your license one month before your license expires.
“How much does it cost to register a business in Alberta. (n.d.). Companyformations.
https://companyformations.ca/much-cost-register-business-alberta/”
 Business Registration Agreements

Alberta is a province with the follows trade agreements:

A. New West Partnership Trade Agreement
B. Canadian Free Trade Agreement
Through these agreements, Alberta seeks to strengthen access to markets for Alberta goods,
services, suppliers, workers, investors, and investments across the West and across the
country.

A. New West Partnership Trade Agreement (NWPTA)

The NWPTA, was brought in effect in 2010, as a trade agreement between the
Provinces of Alberta, British Columbia, Saskatchewan, and Manitoba.
The NWPTA:
• Establishes Canada’s largest interprovincial, barrier-free marketplace.
• Creates a framework for cooperation to sustain the economy of western Canada.
• Portrays an economic powerhouse of more than 11 million people with an altogether
GDP of over $720 billion.
The NWPTA delivers a comprehensive framework to enhance trade, investment, and
labor mobility within the four western provinces.

B. Canadian Free Trade Agreement (CFTA)

The CFTA was implemented on July 1, 2017. The CFTA is an agreement between the
federal, provincial, and territorial governments that pursues to eliminate trade barriers
to the free movement of persons, goods, services, and investments within Canada.
Building upon its forerunner, the Agreement on Internal Trade, the CFTA establishes
a comprehensive and modern framework for internal trade in Canada.
“Government of Alberta. (n.d.). Alberta.Ca. https://www.alberta.ca/index.aspx”
We have already defined different types of business ownerships. Some of the businesses that
can be established with respect to each type of business ownerships are as follows:

A. Sole proprietorship
Since sole proprietorship is a business run by a single person. Some examples of
business that can be established as an individual owner are-
1. Accountants and tax preparers
2. Financial planner
3. Landscaper
4. Computer repair services
5. Freelance writers
6. Tutors
7. Bakers and chefs
8. Housekeepers
9. Day care owners
10. Virtual assistants
“Banks, C. (2016, October 26). Careers With AS Business Degrees. Small
Business - Chron.Com. https://smallbusiness.chron.com/careers-business-
degrees-13649.html”
“Brozak, J. (2018, April 13). 10 Examples of Sole Proprietors. Your Business.
https://yourbusiness.azcentral.com/10-examples-sole-proprietors-10316.html”

B. Partnership
Partnership is a type of business involving more than one owner. Hence some
examples of businesses that can be set up in partnership are-
1. Law firms
2. Real estate investment firms
3. Accounting firms
4. Restaurants
5. Media firms
6. Used vehicle dealerships
C. Corporations
In corporations the owners are not legally bound with their establishments and are
referred to as shareholders who essentially hold stakes/shares in their company. Some
of the examples of corporations are as follows-
1. Banks
2. Real development companies
3. Insurance companies
4. Transportation companies
5. Warehousing and logistics companies
6. Food processing companies
7. Beverage companies
8. Information Technology companies