When choosing a business structure, it is important to consider tax implications, management control, and costs. The optimal structure depends on personal circumstances. MNP can help by considering ownership flexibility, fundraising ability, asset protection, admission of new owners, and tax-efficient succession planning. They discuss the main options: proprietorships, partnerships and corporations, comparing advantages like ease of use, income splitting versus disadvantages like unlimited liability and tax treatment. MNP determines the best structure based on a client's specific goals and operations.

1. STRUCTURING YOUR BUSINESS
Choosing the Right Business Structure for You
ABOUT MNP
MNP is one of the largest national accounting and business consulting firms in Canada. For more than 65 years, we have
proudly served and responded to the needs of our clients in the public, private and not-for-profit sectors. Through partner-led
engagements, we provide a cost-effective approach to doing business and personalized strategies to help organizations succeed.
Praxity AISBL is a global alliance of independent firms. Organised as an international not-for-profit entity under Belgium law, Praxity has its executive
office in Epsom. Praxity – GlobalAlliance Limited is a not-for-profit company registered in England and Wales, limited by guarantee, and has its registered
office in England. As an Alliance, Praxity does not practice the profession of public accountancy or provide audit, tax, consulting or other professional
services of any type to third parties. The Alliance does not constitute a joint venture, partnership or network between participating firms. Because the
Alliance firms are independent, Praxity does not guarantee the services or the quality of services provided by participating firms.
To find out what MNP can do for you, contact:
Visit us at MNP.ca
Mike Delves, CPA, CGA
Business Advisor, Private Enterprise
T: 250.734.4324
E: mike.delves@mnp.ca
James Kungel, CPA, CA
Regional Tax Leader
T: 250.734.4303
E: james.kungel@mnp.ca

2. When choosing an
appropriate structure
for your business, it is
important to consider
your tax situation,
level of management
control, costs
associated with the
particular business
structure and your
succession options.
When choosing an appropriate structure for your business, it is
important to consider your tax situation, level of management
control and costs associated with the particular business structure.
Since each business structure comes with advantages and
disadvantages, the optimal business structure for you depends
on your personal business circumstances. Therefore, it’s
important to have a clear understanding of all your options.
That’s where MNP can help.
HOW MNP CAN HELP
MNP’s Private Enterprise business advisors work closely with you to consider a number of factors:
• Ease and flexibility of changing ownership
• Your ability to raise funds
• Protecting your assets from liabilities
• The ability for new members to buy into the business
• Ensuring a tax efficient transfer of the business to the next operator
After gaining a comprehensive understanding of your operation and your business goals, your advisor will
discuss the three primary options – proprietorship, partnership and corporation – to determine the best
option for you.
PROPRIETORSHIP
The sole proprietorship is a business owned and operated by one individual. A significant number of
businesses are owned as sole proprietorships because they are easily formed and administrated. As the
business owner you are responsible for the business’s legal and tax liabilities.
Advantages
• A proprietorship is easy to establish with minimal costs for legal and accounting fees.
• Wages can be paid to family members for their contributions to the business in
reasonable amounts.
• Business losses incurred may be deducted from other personal income for tax purposes.
Disadvantages
• Income earned in the proprietorship is taxed in the return of the proprietor and subject to the
marginal personal tax rates.
• The purchase of assets and the repayment of loans use after personal tax dollars.
• Unlimited liability - personal assets are exposed to potential creditors of the business.
PARTNERSHIP
A partnership is a business that is owned and operated by more than one person. The owners are
responsible for the business and will receive any income the business generates. A partnership is a
relatively simple structure to administer and therefore will be less expensive for you to operate than
a corporation.
Advantages
• This structure allows for income splitting; where the net income of the partnership may be
allocated to each partner based on contribution of time and capital to the partnership.
• Sharing of expertise of partners with a vested interest in business success.
• Losses incurred in the partnership may be tax deductible against other income of the partners
Disadvantages
• Establishing the partnership will involve initial legal and accounting costs.
• The partnership income is allocated to the members of the partnership and tax is paid by the
individual partner. As individual tax rates increase with increased income, higher taxes are paid
in high income years.
• The purchase of assets and the repayment of loans use after personal tax dollars.
• Personal assets are exposed to potential creditors of the business.
• Partners are jointly liable for the partnership and partners’ actions.
CORPORATION
A corporation is a business that is owned and operated by a group of shareholders.The corporation is a
separate entity and individual shareholders are not held liable for the corporation’s debts or judgments.
Advantages
• The corporate tax rate is lower than the highest personal rates so there is a tax deferral
on income that is left inside the corporation. There is also the opportunity to maximize
shareholders’ personal credits.
• Since the corporation is taxed at a lower rate, you can pay off the debt faster than if you were
in a partnership or proprietorship.
• There are some advantages to be gained from the limited liability, however most lenders
require some level of personal guarantees for the corporate debts.
• A corporation has perpetual existence that allows for a smoother transfer between generations.
• The structure is highly flexible in terms of assets owned and payment of shareholders.
• Income paid from the corporation can be set based on the current needs of the shareholder
and not on the earnings of the business.
• May be able to utilize the Capital Gains Exemption to achieve significant tax reduction on the
sale of the business.
Disadvantages
• This structure is more complex and requires more professional advice, which results in higher
accounting and legal fees.
• The corporation is a separate entity and as such record keeping is more complex.
• The corporation must also file tax returns and ongoing costs are usually higher.
• Tax losses may not be deducted against other personal income of the shareholders.
• Unlike getting into a corporation, winding up the corporation cannot be implemented on a
tax-deferred basis.