How to Select a Business Structure

While choosing how you structure your business is one of the bigger decisions you’ll make as you set up your new business, it’s important to keep in mind that you are not locked into the structure that you choose. You can change how you structure your business as your business grows, so feel free to start off as a trade name or partnership, and switch to a limited corporation as you grow. You can also move from an incorporation to a trade name or partnership.

Which structure you choose depends on whether you want to run the business solely as a trade name, partnership, or with associates as a limited corporation.

Learn more about each type of business structure along with the advantage and disadvantages of each.

Trade Name

  • Trade name is also referred to as a sole proprietorship.
  • This form of un-incorporated business is owned and operated by one individual/entity, where there is no legal distinction between the owner and the business.
  • The owner of the business is fully responsible for all of the business’ profits and losses.

Advantages:

  • Trade name is one of the simplest forms of all business structures with low start-up costs and limited obligation after registration.
  • The owner is in direct control of decision-making and will receive all profits associated with the business.
  • There is a possible tax advantage for the owner of this business type compared to incorporated entities.

Disadvantages:

  • There is no ownership or protection of the business name.
  • The business owner has unlimited liability.
  • It may be difficult to raise capital for the business as there are no shareholders/investors.
  • There is a lack of continuity in absence of owners; the business cannot change ownership or continue without the owner.

Partnership

  • A partnership is a form of un-incorporated business in which two or more individuals/entities combine their resources to form a company with the intent to make a profit.
  • The structure of a partnership is similar to that of a trade name – the owners of the business are fully responsible for all the business’ profits and losses.

Advantages:

  • A partnership is one of the simplest forms of all business structures with low start-up costs and limited obligation after registration.
  • Having more than one owner allows for additional resources for investment.
  • Having multiple owners offers a broader management base.

Disadvantages:

  • There is no ownership or protection of the business name.
  • The business owners have unlimited liability.
  • Each owner is responsible for, and must assume the consequences of the actions of the other partner(s).

Limited Corporation

  • A limited corporation is the most common form of incorporated business in Alberta.
  • The primary benefit of creating a limited corporation is the protection provided to the owners of the corporation – the shareholders.
  • A limited corporation allows shareholders to profit from the success of the corporation, but they are not personally responsible for the debts, obligations, or acts of the other shareholders of the corporation, except in very rare circumstances.

Advantages:

  • The owners have limited liability.
  • Ownership is transferrable.
  • The corporation is a separate legal entity and has the same rights, protections, and responsibilities under the law as individuals do.
  • It’s easier to raise capital through the sale of shares.
  • There is ownership of the incorporated name.
  • A corporation may be perceived as more stable than un-incorporated companies.

Disadvantages:

  • It’s more expensive to organize and create a limited corporation.
  • The business will be closely regulated.
  • Setting up as a corporation requires extensive record keeping and increased maintenance fees.

If you need more help deciding how to structure your business, check out the Business Link.

This nonprofit organization will connect you with the most relevant small business resources to help you succeed. They provide the following:

Once you’ve decided which structure to go with, contact AMA Registries and we’ll be happy to help you with the paperwork. Our professional certified registry agents will work with you and your schedule.

We are able to help you by:

Please note:

  • In order to use our Corporate Registry services, you must be a member in good standing with the AMA, CAA or AAA.
  • A certified registry agent may provide assistance, but please be advised that the role of the agent does not include the provisions of legal advice. AMA recommends that you consult a lawyer licensed to practice law in Alberta on all matters pertaining to the regulations of documents in the corporate registry.

New Business Next Steps

Once you’ve selected a business structure, the following articles will walk you through the remaining steps for setting up your business or corporation.

Trade Name/Partnership

Step 2: How to choose a business name

Step 3: How to register a business in Alberta

Incorporating a Business

Step 2: How to select a corporate name

Step 3: How to register an corporation


Krista is an Online Content Specialist in Edmonton with AMA, a part-time freelance writer, budding editor, jewellery maker, health nut, baker, and believer that dark chocolate makes the world a better place.