What Are the Different Types of Companies in Canada?

Updated September 30, 2022

Canada is a very diverse country and is a great place to do business, with a robust economy and a thriving entrepreneurial culture. There are many companies operating in Canada, from small businesses to large multinationals. Knowing about different companies can help job seekers better understand Canada's business landscape. In this article, we discuss some of the most common types of companies in Canada.

What are the different types of companies in Canada?

The law allows for several types of companies in Canada depending on whether the business is a local or foreign operator. Here is a brief overview of each type:

Sole proprietorships

A sole proprietorship is the simplest business structure common among small businesses. A single person owns and operates this type of company and has complete control over the business. A sole proprietorship is not a separate legal entity, and the owner is personally liable for any debts or lawsuits against the business.

Benefits of a sole proprietorship

There are several advantages of a sole proprietorship. Some of these are:

Ease of setup: A sole proprietorship is easy to set up and does not require special paperwork or registration.
Complete control: The owner has full control over the business and can make all decisions without consulting anyone else.
Low cost: A sole proprietorship is relatively inexpensive to operate, as there are no additional costs associated with maintaining a separate legal entity.
Taxing at the personal tax rate: Owners face lower tax rates than corporations, and the company is taxed at the owner's rate, which usually falls below the corporate rate.

Drawbacks of a sole proprietorship

There are also some disadvantages to the sole proprietorship, which include:

Unlimited liability: The owner is personally liable for all debts and lawsuits against the business. This means that their assets, such as their home or savings, are at risk if the company faces a lawsuit or cannot pay its debts.
Raising capital: It can be difficult for a sole proprietor to raise money, as they cannot sell shares in the business. They may take out loans or bring in partners to get their funding.
Limited life span: The life span of a sole proprietorship is often limited, as the owner can decide to cease operation.

Partnerships

Partnerships are like sole proprietorships but involve two or more people. The partners share control of the business and handle its debts and liabilities. Partnership agreements usually set out the division of profits and losses and who handles what, so that there's no confusion about who owns what percentage of the business.

Benefits of a partnership

There are several benefits to partnerships, including:

Shared responsibility: Partners are jointly responsible for the debts and liabilities of the business, which can help reduce the personal risk for each partner.
Shared resources: Partners can share resources, such as funding, employees, and equipment. This can help to reduce costs and increase efficiency.
Increased expertise: Partners can bring unique skills and knowledge to the business, which can help to grow the company.

Drawbacks of a partnership

There are also some drawbacks to partnerships, such as:

Potential for conflict: Partners may not always agree on how the businesses run, leading to conflict.
Uncertainty: Partnerships can dissolve, which can create uncertainty for the future of the business.
Difficult to find partners: It can be difficult to find partners who are compatible and who you can trust.

Limited liability companies

A limited company is a more formal business structure that protects its shareholders from personal liability. Usually, one or more shareholders own this type of company, and they are liable only to the extent of their investment in the company. It's unincorporated, which means it has benefits like the corporation but is not subject to the same level of regulation.

Benefits of a limited company

There are several benefits to setting up a limited company, including:

Limited liability: Shareholders' assets are safe in the event when the company cannot pay its debts. This provides a sense of security for investors.
Tax efficiency: A limited company can take advantage of tax breaks that are not available to sole proprietorships and partnerships.

Drawbacks of a limited company

There are also some drawbacks to setting up a limited company, including:

Cost: There are costs related to setting up and running a limited company, such as registration fees and annual taxes.
Red tape: Limited companies are subject to more regulation than other business structures, which can be time-consuming and complex.

Cooperatives

Cooperatives are businesses in which the members who have a stake in the profits and losses of the company hold and supervise it. Cooperatives can be for-profit or not-for-profit. Business owners often set them up to provide services to their members, such as housing, banking, or health care. Cooperative companies are sustainable and democratic, and they can be a powerful tool for community development.

Benefits of cooperatives

There are several benefits to cooperatives, including:

Democratic control: Members have a say in how they run the cooperative, which helps ensure it operates in the best interests of its members.
Empowerment: Cooperatives give members a voice and a sense of ownership, leading to a stronger sense of community.

Drawbacks of cooperatives

There are also some drawbacks to cooperatives, such as:

Lack of incentives: Cooperatives may not have the same incentive structures as traditional businesses, leading to a lack of innovation.
Complexity: Cooperatives can be complex to set up and run, requiring a high level of democratic participation from members.

Corporations

A corporation is a separate legal entity from its shareholders, meaning that the shareholders are not liable for the company's debts. A corporation can be either for-profit or not-for-profit. It's the most common business structure, and companies can register as a corporation with the territorial, federal, or provincial government.

Benefits of a corporation

There are several benefits to setting up a corporation, including:

Limited liability: Shareholders' assets are safe in case of bankruptcy or other financial difficulties.
Ease of raising capital: Corporations can issue shares, making it easier to raise money for the business.
Adaptability: A corporation can continue to operate even if the original shareholders sell their shares or leave the company.
Tax efficiency: A corporation can take advantage of tax breaks that are not available to sole proprietorships and partnerships.

Drawbacks of a corporation

There are also some drawbacks to setting up a corporation, including:

Costs: There are costs associated with setting up and running a corporation, such as registration fees and annual taxes.
Administrative burden: Corporations are subject to more regulation than other business structures, which can be time-consuming and complex.

Public companies

Public companies are corporations with many shareholders who own the company, and the stock market allows people to trade their shares. They are subject to more regulation than other types of companies and can disclose financial information to their shareholders. Public companies are usually big and well-established businesses that trade in a stock market.

Benefits of a public company

There are several benefits to setting up a public company, including:

Increased credibility: A firm's inclusion in a stock market might lend it greater credibility with consumers and vendors.
Liquidity: Shares in a public company are much easier to sell than shares in a private company.
Increased visibility: Public companies are often more visible than private companies, which can help to generate more business.

Drawbacks of a public company

There are also some drawbacks to setting up a public company, including:

Increased scrutiny by the government: Public companies are subject to more regulation by the government than other types of companies.
Strict compliance with global accounting standards: Public companies may comply with international accounting standards, which can be costly and time-consuming.
Loss of control: Many shareholders own public companies, making it difficult for the management to decide in the company's best interest.

Crown corporations

Crown corporations are businesses that the Canadian government owns. They typically involve industries such as transportation, banking, and energy. Crown corporations are subject to less regulation than private companies, but they may operate in the public interest. These businesses can offer a wide range of services and are reliable, efficient, and low-cost providers.

Benefits of a crown corporation

There are several benefits to setting up a crown corporation, including:

Less regulation: Crown corporations are subject to less regulation than private companies, making it easier to operate them.
Access to government funding: Crown corporations often have access to government funding, which can help them grow their business.
Tax advantages: Crown corporations may be eligible for tax advantages that are not available to other types of businesses.

Drawbacks of a crown corporation

There are also some drawbacks to setting up a crown corporation, including:

Government interference: The government may interfere in the operations of a crown corporation, limiting its ability to decide in the best interests of its shareholders.
Lack of flexibility: Crown corporations may operate in the public interest, limiting their ability to pursue profits.

What Are the Different Types of Companies in Canada?