Forms of Business Ownership and Small Business Operations in Canada

Forms of Business Ownership and Small Business Operations in Canada

Business Portfolio of Canada

This section provides an overview of the structure and characteristics of businesses in Canada, focusing on the prevalence and types of small businesses.

• Micro-enterprise: A small business defined as having one to four employees. Microenterprises represent 55.3% of businesses in Canada.

• Increasing the size of microenterprises to 5-9 employees grows the proportion of this size of business to 73.9% in Canada.

• Most Canadian businesses are small businesses.

• Size in Canada is measured by:

  • Small: 1-99 employees (97.9%)

  • Medium: 100-499 employees (1.9%)

  • Large: 500+ employees (0.2%)

• Type of businesses in Canada:

  • 21.1% producing goods

  • 78.9% producing services

Table: Total Number of Employer Businesses by Size (December 2020)

This table compares the number of small, medium, and large businesses across Canadian provinces and territories.

Province/Territory	Small (1-99)	Medium (100-499)	Large (500+)	Total
Canada	1,338,141	22,725	2,868	1,363,734
Ontario	473,519	7,687	1,016	482,222
Quebec	253,322	4,073	484	257,879
British Columbia	187,452	2,670	312	190,434
Alberta	167,444	2,370	312	170,126
Other provinces/territories	256,404	5,925	744	263,073

Additional info: Table values are representative and may be rounded for clarity.

Trends in Business Growth and Survival

• Growth in business numbers is influenced by factors such as increased risk in hiring after COVID, desire for flexibility, online opportunities, and increased immigration.

• Survival rates for businesses decrease over time, with smaller businesses generally having lower survival rates compared to larger ones.

Home-Based and Web-Based Businesses

• Over 51% of US small businesses are home-based; similar trends are seen in Canada.

• Advantages: Flexibility, low overhead, ability to sell online, and adaptability to social changes.

• Challenges: Customer acquisition, time management, separating work and family, compliance with regulations, and managing taxes and risk.

• Web-Based Businesses: E-commerce sales in Canada are growing rapidly, with over 76% of Canadians purchasing online in 2019.

Forms of Business Ownership

Sole Proprietorship

A business owned and usually managed by one person.

• Advantages: Easy to start/end, full control, pride of ownership, retain profit, no special taxes, less regulation.

• Disadvantages: Unlimited liability, limited resources, management difficulties, time commitment, limited growth/lifespan, possibly higher taxes.

Partnerships

A legal form of business with two or more parties.

• Advantages: More resources, shared management, longer survival, shared risk, no special taxes.

• Disadvantages: Unlimited liability (shared), profit division, disagreements, difficult termination, higher taxes, not everyone can form a partnership.

• Types of Partnerships:

  • General Partnership: All owners share in operation and liability.

  • Limited Partnership: Includes general and limited partners; limited partners invest but do not manage.

  • Limited Liability Partnership (LLP): Limits partners' risk to their own actions and those under their supervision.

Corporations

A legal entity with authority to act and liability separate from its owners.

• Types:

  • Public Corporation: Issues shares to the public; shares may be listed on a stock exchange.

  • Private Corporation: Shares are not publicly traded; usually controlled by a small group.

• Advantages: Limited liability, more investment, perpetual life, ease of ownership change, attracting talent, separation of ownership and management.

• Disadvantages: High costs, paperwork, double taxation, two tax returns, inflexibility, difficult termination, potential conflicts.

Other Types of Corporations

• Professional Corporations: Owned by professionals (e.g., accountants, architects).

• Crown Corporations: Registered by government.

• Non-Profit Corporations: Do not seek profit for owners (e.g., universities, hospitals, charities).

Comparison of Forms of Business Ownership

Feature	Sole Proprietorship	General Partnership	Limited Partnership	Public Corporation	Private Corporation
Documents Needed	None	Partnership agreement	Written agreement	Articles of incorporation	Articles of incorporation
Ease of Termination	Easy	May be hard	Same as general	Hard	Not difficult
Length of Life	Terminates on death	Terminates on death/withdrawal	Terminates on withdrawal	Perpetual	Perpetual
Transfer of Ownership	Sale of business	Agreement	Agreement	Sell shares	Sell shares
Financial Resources	Limited	Limited to partners	Same as general	More money	Owners' capital
Risk of Losses	Unlimited	Unlimited	Limited	Limited	Limited
Taxes	Personal income	Personal income	Cannot participate in management	Corporate, double taxation	Same as public
Employee Benefits	Few	Fewer	Same as general	Better benefits	Same as public

Business Regulations

• Businesses must follow provincial and federal laws and regulations.

• Registration ensures unique names and proper tax payments.

• Federal registration protects company name and usage across Canada.

• Articles of Incorporation: Legal authorization for a company to use the corporate format.

• Corporations must file annual reports and other forms if public.

Learning About Small-Business Operations

• Learn from others

• Get experience

• Buy an existing business

• Buy a franchise

• Inherit/take over a family business

Franchising

• Franchise: The right to use a business's name and sell its goods/services in a territory.

• Franchise agreement: Legal arrangement for using the business name and selling goods/services.

• Franchisor: Company that develops the concept and sells rights.

• Franchisee: Person who buys a franchise.

• Advantages: Management/marketing assistance, personal ownership, recognized name, financial advice, lower failure rate.

• Disadvantages: Large start-up costs, shared profit, management regulation, coattail effects, restrictions, fraudulent franchisors.

Co-operatives

• Co-operative: Organization owned by people with similar needs who pool resources for mutual gain.

• One member/one vote system; profits shared based on use, not shares held.

• Profits not subject to income tax.

• Some are worker-owned, others are member-owned.

• Over 9000 co-operatives in Canada, employing over 150,000 people.

Area of Activity	Percentage
Housing co-operatives	42%
Agricultural co-operatives	21%
Retail co-operatives	10%
Credit unions and caisse populaires	9%
Co-operatives offering child care/education	6%
Worker co-operatives	5%
Health care co-operatives	4%

Business Planning and Financing

Typical Business Plan Structure

• Executive Summary: Overview of the plan (2 pages)

• Industry Overview: Competition, key factors, trends, estimated revenues

• Market Analysis: Target market, segmentation, buying behaviours, competitive advantages

• Sales & Marketing Plan: Selling proposition, channels, promotion, pricing, distribution, after-sale support

• Management Team: Skills, requirements, remuneration, governance

• Operating Plan: Physical space, machinery, inventory

• Financial Plan: Capital required, sources, revenue forecasts, expenses

Business Financing

• Bootstrapping (personal financing) is the most common source.

• Other sources: financial institutions, trade credit, retained earnings, government loans, angel investors, venture capital.

• Crowdfunding: Raising small amounts of money from a large number of people, typically via the internet.

Constructing Financial Projections

• Opening Balance Sheet: Assets, liabilities, equity at business start.

• 2 years of income statement projections (revenues and expenses).

• 24-month cash flow forecast (monthly revenues and expenses).

• Detailed assumptions based on research and planning.