Business Structure & Incorporation

Choosing the Right Structure for Your Business

The structure you choose for your business affects everything from daily operations to long-term growth potential. It determines your tax obligations, personal liability exposure, ability to raise capital, and succession options. Making the right choice now saves time, money, and prevents complications later.

Sole Proprietorships

A sole proprietor is an individual who operates a business to make a profit. Any income generated by the business is taxed as personal income for the owner, and any liabilities from the business are the owner’s responsibility. The income is taxed at the owner’s regular tax rate, and business expenses can be deducted when calculating taxable income. If the sole proprietor operates under a name other than their own, that name must be registered as a business name with the Registry of Joint Stock Companies.

Partnerships & Partnership Agreements

A partnership is a relationship between two or more individuals or companies that conduct business with the goal of making a profit. The income generated by the business will be taxed in each partner’s hands, and the liabilities will be the partners’ shared responsibility. If the partners operate under a name other than their own, the name must be registered with the Registry of Joint Stock Companies. In Nova Scotia, partnerships are governed by the Partnerships and Business Act. That statute states that, unless there is a different agreement, all partners are equal and that, upon the death of one partner, the partnership automatically dissolves. Therefore, it is essential to have a partnership agreement.

Provincial Incorporation

A company is a business structure created under a specific law. Most companies in Nova Scotia are incorporated under the Companies Act of Nova Scotia. A company is owned by its shareholders, who elect one or more directors. These directors, in turn, appoint officers. The officers usually include the president and secretary, but may also encompass one or more vice presidents, a treasurer, a Chief Executive Officer, and others. When you incorporate a company, it is treated as a separate legal person. This means the company has its own assets and liabilities, and its income is taxed independently. If certain conditions of the Income Tax Act are satisfied, the company’s income may be taxed at a much lower rate than if individual shareholders earned it as sole proprietors or partners.

Unlimited Liability Companies (ULCs)

We have extensive experience working with Unlimited Liability Companies (“ULCs”), which can be an effective method for American investors to establish operations in Canada.

Corporate Organization

Proper corporate organization ensures compliance with the Companies Act and other regulatory requirements. This includes maintaining minute books, filing annual returns, and managing corporate records.

Shareholders Agreements

Whenever you engage in business with others, whether as shareholders or partners, it is wise to have a written agreement to help resolve disputes in case of conflict. Often, these agreements are never consulted. As long as the involved parties agree on handling matters, they tend to overlook the contract’s provisions; however, these provisions are very useful if there is a falling out, or if a shareholder or partner passes away or becomes disabled. Such agreements can cover a variety of topics and may be quite detailed in some cases. At a minimum, they should include provisions and mechanisms for resolving disputes and addressing issues related to death, disability, or bankruptcy of a shareholder or partner.