How to choose a Business Structure in Saskatchewan

Choosing a right business structure is a foundational decision for starting a business anywhere. The critical decision will impact everything from day-to-day operations to long-term strategic planning.

So, when you decide to start your own business, the first thing you need to know is what type of business structure is best suited to your needs, goals, vision, and objectives.

There are many types of legal business structures that exist in Saskatchewan. But the most primary types of businesses are as follows:

• Sole Proprietorship
• Partnership
• Corporation
• Co-operative

Let’s explore the different structures available in Saskatchewan, along with their pros and cons, to help you make an informed decision.

1.Sole Proprietorship

Sole proprietorship is the simplest form of business where one individual owns and operates the whole business. This structure is straightforward to set up, offering complete control to the owner.

Advantages of Sole Proprietorship:

• Simple and inexpensive: Easy to set up and maintain, with minimal paperwork and fees.
• Full control: Owner has the complete decision-making authority over the business.
• Owner retains all profits: No need to share earnings with partners or shareholders. Full profit goes to solely the owner directly.
• Tax Advantage: if your business is not performing well, you can deduct losses from your personal income. There is a lower tax bracket when profits are low.
• Operate under own Name:  If a sole proprietor wants to operate under his/her own name he can do it. Because there is no obligation to use a business name.

Disadvantages of Sole Proprietorship:

• Unlimited personal liability: Your personal assets are at risk for business debts and liabilities.
• Name is Not Protected: Sole Proprietorship Business name cannot be Protected across Canada. It is only reserved in registered jurisdiction.  
• Limited fundraising potential: Raising capital can be challenging as you cannot issue shares.
• Difficulties attracting investors: The lack of a separate legal entity may deter potential investors.
• Ownership transfer Restriction: A Sole Proprietorship business can not transfer it ownership once it registered.
• Lack of Continuity: If Sole Proprietorship business owner pass away unexpectedly this business also be cancelled.
• No extra-provincial Registration: There is extra-provincial registration scope for sole proprietorship business. So, it Cannot expand outside of registered province.
• Difficulty to get business Loan: May be difficult to secure a business loan; may have to take a personal loan.

2.Partnership

In a partnership, two or more individuals share their ownership and the operational responsibilities of the business. Partnerships can be either general, where all partners share equal liability, or limited, where liability is proportional to investment.

There are three types of partnership exist in Saskatchewan.

1. General partnership
2. Limited partnership
3. Limited Liability partnership

Advantages of Partnership Business:

• Easy Formation: This business is relatively easy to set up as like Sole proprietorship business
• Shared resources and expertise: Combine skills and resources with partners, fostering collaboration and growth.
• Potential for increased profits: Sharing responsibilities and workload can lead to higher earning potential.
• Low Regulatory: This business requires low regulatory burden to register. Only after three years need to renew the name.
• Pass-through taxation: Profits and losses pass through to individual partners’ tax returns.
• Tax Advantage: As like Sole proprietorship if partnership business is not performing well, partners can deduct losses from your personal income. There is a lower tax bracket when profits are low.

Disadvantages of Partnership Business:

• Unlimited liability for general partners: Partners personal assets are at risk for business debts and liabilities.
• Potential for disagreements: Sharing decision-making power can lead to conflicts and disagreements.
• Complexities in profit sharing and dissolution: Establishing clear agreements regarding profit sharing and business dissolution is crucial.
• Potential for disputes & Conflict among partners: It is Hard to find suitable partners and develop trust. There is Possible development of conflict between partners when it come to a whole consent.
• Lack of Continuity: If partners of this business owner pass away unexpectedly this business also be cancelled.
• No extra-provincial Registration: There is extra-provincial registration scope for partnership business. So, it Cannot expand outside of registered province.
• Name is Not Protected: Business name cannot be Protected across Canada. It is only reserved in registered jurisdiction.  
• Difficulty to get business Loan: May be difficult to secure a business loan; may have to take a personal loan.

3.Corporation

A corporation is a legal entity that is owners. In a corporation the owners or shareholders of a corporation is not personally liable for any debts or any action for corporation. That is why there is a legal suffix (Limited or Ltd., Incorporated or Inc., Corporation or Corp) must put at the end of the name of a corporation.

In Saskatchewan there are two types of Corporations:

1. Named corporation: That has a name and its distinct from other business or corporation name.
2. Numbered Corporation: A numbered corporation generally corporate registry office has given the name automatically. Example of a numbered corporation is: 123456789 Saskatchewan Ltd.

To form a corporation at first owner(s) or shareholder(s) need to file articles of incorporation. That is composed of:

1. Director(s) full name and address
2. Registered and mailing address.
3. Share structure.
4. Share class.
5. Share transfer.
6. Incorporator
7. Bylaw and Minutes book

A Saskatchewan corporation either named or numbered corporation can ne form one or more persons. But at least 25 % of the corporation must be a Canadian citizen or Canadian permanent residence.

The registered address of the corporation must be within Saskatchewan. One of the important things is that a private Saskatchewan corporation can not sell shares or securities to the public.

A corporation can appoint officer(s) to maintain and mange it daily activity.  A director or owner can be officer. Officer designation can be:

1. President
2. Treasurer
3. Chief executive of Officers (CEO)
4. Chief financial officer (CFO) and so on

The directors can also be the shareholders or employees. However, this advantage comes with the complexities of regulatory compliance, potential double taxation, and the formalities required in corporate governance. Despite these challenges, corporations remain a popular choice for established businesses and ventures seeking significant growth and investment opportunities.

Advantages of Corporation:

• Name Protection: A corporation name protected. No one can take its name. If a corporation incorporated in federally the name of the corporation protected across Canada.
• Limited liability: First and foremost, advantages of a corporation is it protects personal assets from business debts and liabilities, offering significant financial security.
• Access to capital: Can raise funds through issuing shares, attracting investors, and facilitating growth.
• Perpetual existence: The corporation continues to exist regardless of changes in ownership or directors.
• Business expansion: A corporation can easily expand its business from one jurisdiction to another jurisdiction. For that purpose, it needs to register an Extra-provincial Registration. Even if it can go internationally.

Disadvantages of Corporation:

• More complex and expensive to set up and maintain: Formation of a corporation is not as easy as other business structure. It Requires complying with additional regulations and incurring higher fees.
• Double taxation: One of the demerits of a corporation is a corporation pay corporate income tax on profits, and shareholders pay personal income tax on dividends received.
• Increased administrative burden: Maintaining corporate records and complying with governance requirements can be complex.
• Bureaucracy in decision making: A corporation can not take its decision instantly. To take a decision there is a procedure to follow. That delay taking important decisions. For this reason, there is possibility of conflict between shareholders and executives.

4.Cooperative

A cooperative is a member-owned, member-governed business that operates for the benefit of its members according to common economic, social, and cultural needs and aspirations. Unlike traditional investor-driven companies, cooperatives are owned and democratically controlled by their members, prioritizing their shared interests and social impact over maximizing profits.

cooperatives focus on service and value provision to their members. The democratic structure of cooperatives means that each member has an equal say in decision-making, fostering a community-oriented environment.

Advantages of a cooperative:

• Democratic Control:  Every cooperative owned and controlled by its members. Each one having an equal vote, promoting fairness and equality.
• Limited Liability: In here every member has limited liability.  Like corporations, some cooperatives offer limited liability protection for members, shielding personal assets from business debts.
• Community focus: Cooperatives often prioritize social responsibility and reinvest profits back into the community, fostering sustainable development.
• Profit Distribution: Profits are returned to the members, not based on their investment or ownership. Surplus may be allocated in shares or cash but according to their use of the cooperative’s services, aligning the cooperative’s success with member satisfaction.
• Shared benefits: Profits are often distributed among members based on their participation or patronage, promoting fair and equitable practices.

Disadvantages of a cooperative:

• Complex governance: Democratic decision-making processes can be slow and require active member participation, potentially hindering agility.
• Capital Acquisition: Raising capital can be challenging, as cooperatives often rely on member contributions and may offer limited investment return incentives.
• Decision-Making: The democratic process, while inclusive, can lead to slower decision-making and potential challenges in reaching consensus, especially in larger cooperatives.
• Competition: Cooperatives may face competition from traditional businesses with greater access to capital and an established market presence.
• Less incentive: Its members get less incentive than other types of businesses.
• Member commitment: The success of a cooperative relies heavily on active member participation and engagement, which requires ongoing efforts to maintain member interest and involvement.

How RegiCorp Can Help

Regardless of your chosen structure, RegiCorp can be your trusted guide through the registration process in Saskatchewan. We offer various incorporation packages to suit your needs, including:

• Sole proprietorship registration: Streamline the process and ensure proper filing.
• Partnership agreement drafting: Assist in creating a comprehensive agreement outlining partner rights and responsibilities.
• Corporation incorporation: Handle the complexities of forming a corporation, including filing Articles of Incorporation.
• Ongoing support: Provide guidance on compliance requirements and future business needs.

That You Must Consider:

Q: Which structure is right for me?

A: The best structure for you depends on several factors, including:

• Liability protection: How much personal risk are you comfortable with?
• Taxation: Each structure has different tax implications.
• Ownership and control: Do you want sole control or share ownership with others?
• Growth potential: Does your business have the potential to grow and attract investment?

Q: Do I need professional help to choose a structure?

A: While not mandatory, consulting with a lawyer or accountant can be beneficial, especially for complex businesses or if you have specific questions about tax implications.

Q: What resources are available to help me learn more about business structures?

A: Several resources are available in our blog section. And in our form you can have a Faq session. If need further information contaact to our expert at info@RegiCorp.ca or call at +1 647 948 7191

Q: Is it possible to Change business structure from a sole proprietor to a corporation?

A: Yes, it is possible to change a business structure from a sole proprietorship to a corporation. But It’s not a direct conversion. This transition involves a series of legal and administrative steps, including choosing a corporate name, filing articles of incorporation with the relevant government body, and obtaining a new tax ID for the corporation.

Remember: choosing the right business structure is a crucial decision that can impact your business for years to come. Research thoroughly, consider your specific needs, and don’t hesitate to seek professional guidance if needed.