Pros and Cons of Business Structures

Question 1

What is a proprietorship?

Answer 1

Small business owned and run by one person (sole proprietor)

Question 2

What is a partnership?

Answer 2

Business usually owned and/or run by more than one person (the partners)

Question 3

What is a corporation?

Answer 3

Business is incorporated as a separate legal entity

Question 4

What are the pros of a proprietorship?

Answer 4

– Simple to set up and maintain records
– Does not have to file a separate tax return since the income is treated as income of the owner for tax purposes

Question 5

What are the pros of a partnership?

Answer 5

– A basic partnership is simple to set up and for maintaining records
– Does not have to file separate tax returns because the income is treated as income of the partners for tax purposes

Question 6

What are the pros of a corporation?

Answer 6

– Limited liability protection
– Any obligations are the obligations of the corporation and not the owners

Question 7

What are the cons of a proprietorship?

Answer 7

– Not a separate legal entity and therefore any lawsuits against the business would be directed against the sole proprietor
– Personal assets may be required to pay off business debts

Question 8

What are the cons of a partnership?

Answer 8

– Not a separate legal entity and therefore any lawsuits against the business would be directed against the partners
– Personal assets may be required to pay off business debts

Question 9

What are the cons of a corporation?

Answer 9

– More complex to set up and for maintaining records
– Separate tax returns must be completed and filed for the corporation
– Covered by the Canada Business Corporations Act or provincial corporations act—legal requirements for reporting and maintaining records