Common Business Structures in Ontario

Starting a new business venture can be an exciting opportunity. Before embarking on the new venture, however, it is important to take the time to carefully consider which business structure may be best for your business and financial goals. Not all business structures are created equally, and each offer unique benefits and drawbacks.

In this blog post we outlined the most common business structures in Ontario - sole proprietorships, partnerships, and corporations - and some of the key features of each. For more specific guidance on which structure is appropriate for you, we recommend you consult with your financial and legal advisors.

Sole Proprietorships

A sole proprietorship is the simplest business structure. A sole proprietorship exists when an individual carries on business for themselves, with no legal separation between the individual and the business. Unlike a corporation, a sole proprietorship arises automatically, saving the individual the time and cost associated with incorporation. If the individual will be operating the business under a name other than their own, however, it will be necessary to register the business name under the Business Names Act.

There are a couple important repercussions of operating as a sole proprietorship:

  • The business cannot hire the individual as an employee.
  • All income generated by the business is attributable to the individual and taxed as such.
  • The individual is responsible for all of the obligations of the business, including employment obligations or contractual obligations.
  • The individual is personally responsible for any debts or liabilities of the business - there is unlimited liability.
  • The sole proprietorship ends when the individual dies or ceases carrying on business.

While a sole proprietorship is the easiest business structure to establish, its utility may be limited for larger businesses with more obligations and liabilities.


A partnership exists when two or more people carry on a business in common with a view to profit.

In Ontario, there are a couple of different types of partnerships which can exist: (1) General Partnership, (2) Limited Partnership, and (3) Limited Liability Partnership.

(1) General Partnership:

General partnerships are governed by the Partnerships Act. The Partnerships Act contains a number of default rules that will govern partnerships unless ousted by a formal partnership agreement.

Like a sole proprietorship, general partnerships can arise automatically without formal documentation, save for registration under the Business Names Act where required. Some of the key features of a general partnership include:

  • The partnership cannot hire the partners as employees.
  • The partnership is not a separate taxable entity. Rather, income is assessed at the partnership level and allocated to the partners. From there, it is then distributed to the partners and taxed at the individual level.
  • The partners are responsible for all of the obligations of the partnership, including employment obligations or contractual obligations.
  • The partners are each jointly and severally responsible for the debts and liabilities of the partnership - there is unlimited liability.
  • Each partner can contract with third parties on behalf of the partnership.
  • A partnership may or may not continue following the death of the partner. It will depend on the terms of the partnership agreement, if any.

(2) Limited Partnerships:

In a limited partnership two classes of partners exist - general partners and limited partners. The general partners are responsible for the management of the business and are personally responsible for any debts of the business, much like in a general partnership. On the flipside, the limited partners do not participate in the management or day to day operations of the business. In turn, a limited partner's liability for the debts of the business is limited to the amount of their investment in the partnership.

Limited partnerships must be registered in accordance with the Limited Partnerships Act.

(3) Limited Liability Partnership:

A limited liability partnership is like a general partnership, however, each partner's liability is limited. Specifically, if a claim is made against one partner for negligence, the other partners will not be exposed to personally liability for that claim. This reduced exposure to liability can be a significant advantage.

Not every business can be structured as a limited liability partnership. In Ontario, a limited liability partnership can only be established for the purpose of a practising a profession and if the following criteria are met:

  • The legislation governing the profession expressly permits a limited liability partnership;
  • The governing body of the profession requires the profession maintain a minimum amount of liability insurance; and
  • The requirements of the Business Names Act are met.


When starting a business, many individuals choose to incorporate. Although more time and cost intensive to establish, corporations offer the benefit of limited liability. This is because the corporation is a separate legal entity. It is the corporation that owns the business, including the assets and contractual rights, and it is the corporation that is responsible for the debts and liabilities of the business.

In deciding whether to incorporate, consideration should be had of the following factors:

  • The corporation is the employer.
  • The corporation is a separate taxable entity. Income is attributed to the corporation and taxed on its own. Any income paid out by the corporation by way of salary or dividend may also then be taxed on the individual level.
  • The corporation is responsible for its own obligations, including employment obligations and contractual obligations.
  • The liability of the shareholders of the corporation is limited.
  • The directors of the corporation may be exposed to personal liability in certain circumstances.
  • A corporation will survive the death of its shareholders.

Incorporation requires a fair amount of paperwork and can have important tax and legal consequences. Before starting the incorporation process, individuals are encouraged to seek financial and legal assistance.


There are a number of ways to structure a business in Ontario, and no one business entity fits all. Each structure has its advantages and disadvantages, and which is right for any given business will largely depend on the unique nature and circumstances of the business. For example, the process of incorporation may be unduly complex and costly for an individual looking to take on a handful of hobby projects. On the flipside, incorporation may be the best choice for an enterprise that is looking to expand.

In every case, proactively seeking financial and legal advice is recommended. Lee Workplace Law would be happy to assist you with your business needs.