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Business Formation
At Jahanshahi Law Firm, we recognize the pivotal role that choosing the right legal structure plays in the success of your business. The decision you make regarding your business entity can significantly impact various aspects, such as taxation, liability, management, and long-term viability. Our dedicated corporate and commercial law team is here to guide you through the intricacies of business formations and assist you in making well-informed decisions that align with your unique goals and vision.
Why Choosing the Right Business Structure Matters
Choosing the right business structure is one of the most important legal and strategic decisions an entrepreneur or business owner can make. Your structure will impact everything from tax obligations and liability exposure to funding options, operational flexibility, and long-term succession planning. Whether you’re launching a startup, scaling an existing company, or restructuring for growth, selecting the appropriate legal framework is critical to protecting your interests and setting your business up for long-term success. Our expertise extends to a broad spectrum of business entities, including:
Sole Proprietorships:
A sole proprietorship is the simplest and most common form of business structure in Ontario, where an individual owns and operates an unincorporated business alone. The owner has complete control over all business decisions and receives all profits but is also personally responsible for all debts and liabilities, meaning personal assets could be at risk if the business incurs debt or legal issues. In Ontario, if you operate a business under a name other than your full legal name, you are required to register the business name under the Business Names Act. This registration, previously known as a Master Business Licence, is valid for five years and must be renewed thereafter.
Operating under your own name does not require registration, but registering can provide legitimacy and access to certain benefits, such as opening a business bank account. Tax-wise, income from a sole proprietorship is reported on the owner’s personal income tax return, allowing business expenses to be deducted from personal income. However, this structure does not provide liability protection, as there is no legal distinction between the owner and the business. While sole proprietorships offer simplicity and full control, they come with unlimited personal liability which poses a huge issue to many business owners.
Partnerships:
Partnerships come in various forms, including:
General Partnerships: Forming a general partnership in Ontario is relatively straightforward. While a written agreement isn’t legally required, it’s highly recommended to have a comprehensive partnership agreement detailing aspects like profit sharing, decision-making processes, and procedures for resolving disputes. This helps prevent misunderstandings and provides a clear framework for the partnership’s operation.If the partnership operates under a business name different from the partners’ legal names, registration is mandatory under the Business Names Act. This process involves registering the firm name with the province, ensuring legal compliance and transparency.
One critical aspect of general partnerships is the issue of liability. In this structure, partners share unlimited personal liability for the debts and obligations of the business. This means that if the partnership cannot meet its financial obligations, creditors can pursue the personal assets of any or all partners to satisfy outstanding debts. Choosing to operate as a general partnership in Ontario offers simplicity and collaborative advantages but comes with significant liability considerations. It is important to note that corporations can be partners within a partnership.
Limited Partnerships: Limited partnerships include both general and limited partners, each with different roles and liability levels.A limited partnership (LP) is a specialized form of partnership available under Ontario’s Limited Partnerships Act. It is commonly used when investors or silent partners want to contribute capital to a business without becoming actively involved in its day-to-day operations or assuming personal liability beyond their investment. A limited partnership consists of two classes of partners: General Partner(s) who manage and control the business and have unlimited personal liability for the debts and obligations of the partnership and Limited Partners who typically provide funding or resources but do not participate in the active management of the business. Their liability is limited to the amount of their contribution to the partnership.
To legally operate as an LP in Ontario, the partnership must be registered with the Ministry of Public and Business Service Delivery by filing a Form 3 (Declaration) under the Limited Partnerships Act. This filing must include the names of general and limited partners, the nature of the business, and other key information. Limited Partnerships are often used in real estate development projects and some professional investment syndicates. Limited partners must remain passive. If a limited partner is found to be actively involved in managing the business, they risk losing their limited liability protection. It is essential to clearly define roles and responsibilities in a written partnership agreement to preserve the integrity of the structure. From a tax perspective, limited partnerships are treated as flow-through entities. Profits and losses pass through to the individual partners, who report their share on their personal or corporate tax returns, depending on how the partner is structured.
Limited Liability Partnerships (LLP): A Limited Liability Partnership (LLP) is a unique business structure designed specifically for certain regulated professions in Ontario. It combines the flexibility of a general partnership with liability protection for individual partners. LLPs are governed by the Partnerships Act, with specific provisions for limited liability outlined in Ontario Regulation 688/05. In an LLP, each partner is not personally liable for the negligence, misconduct, or malpractice of another partner. However, they remain liable for their own actions, as well as for the general obligations of the partnership to the extent of their contribution or personal guarantees. Not all businesses can register as an LLP. In Ontario, LLPs are limited to certain professional groups that are governed by regulatory bodies. These include: Lawyers and Chartered Professional Accountants (regulated by CPA Ontario). Each profession must be authorized by its governing body to operate as an LLP. For example, law firms must obtain permission from the Law Society of Ontario and file a certificate of authorization before registering the LLP.
Corporations:
Incorporating a business is one of the most effective ways to establish a separate legal entity that is distinct from its owners. A corporation can own property, enter into contracts, sue or be sued, and continue to exist independently of any changes in ownership. In Ontario, corporations are governed by the Business Corporations Act (OBCA) or federally under the Canada Business Corporations Act (CBCA). One of the most compelling advantages of incorporating is the limited liability it provides to its shareholders. Unlike sole proprietorships or partnerships, shareholders of a corporation are generally not personally responsible for the debts or liabilities of the business. This separation creates a layer of legal protection for business owners and opens up a range of planning opportunities. Corporations also benefit from potential tax advantages, including access to the small business deduction and the ability to retain and reinvest profits at lower corporate tax rates. In addition, raising capital tends to be easier through the issuance of shares or by securing business loans under the corporate name. Ownership is also transferable, allowing for continuity in management or succession planning.
The incorporation process in Ontario involves filing Articles of Incorporation, selecting a name or using a numbered company, appointing directors, and establishing a registered office. Once incorporated, the business must maintain proper corporate records, issue share certificates, prepare corporate bylaws, and keep an up-to-date minute book. Corporations are also subject to annual return filings and must comply with ongoing record-keeping and tax obligations. There are several types of corporations available depending on the nature of the business, including standard private corporations, professional corporations, and personal real estate corporations. Standard private corporations are the most commonly used structure and can be customized to suit virtually any business model, from startups to holding companies. They offer flexibility in ownership, management, and tax planning, making them a popular choice for entrepreneurs and small business owners.
Incorporation can be a powerful legal and financial tool—but it also brings formalities and obligations. Corporations must be properly maintained to preserve the benefits of limited liability and tax efficiency. For professionals and business owners alike, careful structuring and legal advice are essential to ensure compliance with all applicable laws, regulatory requirements, and best practices.
Trusts:
A trust is a flexible legal arrangement in which one party, known as the trustee, holds and manages property or assets on behalf of another party, called the beneficiary. The person who creates the trust is known as the settlor. In Ontario, trusts are governed by both common law principles and statutory rules, including the Trustee Act. Trusts are not business structures in the traditional sense, but they are powerful legal tools often used for business succession, asset protection, estate planning, and tax minimization. Trusts can be established during a person’s lifetime (inter vivos trusts) or take effect upon death through a will (testamentary trusts).
One of the most common types of inter vivos trusts used in the business context is a family trust, often established to hold shares in a private corporation. Through a properly structured family trust, business owners can allocate income among beneficiaries, implement long-term succession planning, and multiply access to the lifetime capital gains exemption on the sale of qualifying shares of a Canadian-controlled private corporation.
Joint Ventures:
A joint venture (JV) is a business arrangement where two or more parties come together to collaborate on a specific project or business opportunity while remaining separate legal entities. Unlike a partnership, which typically involves an ongoing relationship with shared liability and profit across all activities, a joint venture is usually limited in scope and duration, with each party retaining its independence outside of the venture.
In Ontario, joint ventures are not governed by a specific statute but are instead structured through contractual agreements. These agreements outline the terms of the relationship, including the purpose of the venture, the contributions of each party, governance and decision-making rights, the allocation of profits and losses, and how the venture will be wound down upon completion. Because of the flexibility inherent in joint ventures, they can be tailored to suit complex commercial arrangements, including cross-border deals, real estate developments, resource exploration projects, and technology collaborations.
Joint ventures can be structured in different forms depending on the nature of the project and the level of formality the parties require. The two most common formats are contractual joint ventures and incorporated joint ventures. In a contractual joint venture, the parties simply enter into a detailed agreement without forming a new legal entity. In an incorporated joint venture, the parties create a new corporation to operate the venture, and each party becomes a shareholder of the new entity. This allows for limited liability and clear separation between the venture and the other business activities of the participants.
Because joint ventures do not have a defined legal status under Ontario law, careful drafting of the joint venture agreement is essential. A poorly structured JV can inadvertently create a general partnership, exposing the parties to unintended liability. For this reason, legal advice is critical at the outset to ensure that the arrangement reflects the commercial intentions of the parties while protecting their interests.
Joint ventures are often used when parties bring complementary strengths to the table—such as capital, land, intellectual property, or market access—but prefer not to merge operations on a permanent basis. They offer flexibility, shared risk, and the ability to pool resources for a common goal.
Not-for-Profit Corporations:
A not-for-profit corporation is a legal entity formed to operate for a social, charitable, cultural, educational, religious, or community-oriented purpose—rather than for profit. While not-for-profit corporation may generate revenue through services, donations, or grants, any profits must be reinvested into the organization’s mission and cannot be distributed to members, directors, or officers. In Ontario, not-for-profit corporation are governed by the Ontario Not-for-Profit Corporations Act (ONCA) or by the Canada Not-for-profit Corporations Act if the organization is federally incorporated.
Forming a not-for-profit corporation involves filing Articles of Incorporation with either the Ontario or federal government, depending on the desired jurisdiction. The incorporators must also prepare bylaws to govern how the organization will operate, including how directors are elected, how meetings are conducted, and how funds are managed. A not-for-profit corporation must maintain corporate records and hold annual meetings, just like for-profit corporations, and is subject to reporting and compliance obligations under the applicable statute.
not-for-profit corporation are distinct from charitable organizations. While all charities are non-profits, not all non-profits are charities. A registered charity must apply for charitable status with the Canada Revenue Agency (CRA) and comply with additional rules under the Income Tax Act, including limits on political activity and the requirement to devote all resources to charitable purposes. Charitable status allows an organization to issue tax receipts for donations, which can be a major advantage when fundraising. In contrast, non-profits that do not register as charities can have broader purposes, such as supporting a professional association, running a community organization, or managing a recreational club. These organizations may still qualify for tax-exempt status if they meet the CRA’s criteria, but they cannot issue donation tax receipts and are limited in how they earn and spend income.
not-for-profit corporation offer several advantages. They provide a clear legal structure, limited liability protection for directors and officers (provided they act in good faith), and formal governance mechanisms. Incorporation can also improve credibility with donors, government bodies, and grant providers, while offering continuity beyond the involvement of any single individual. However, non-profits are also subject to public accountability standards and should be managed with transparency and strict adherence to their stated objects.
Franchises:
A franchise is a legal and commercial relationship where one party (the franchisor) grants another party (the franchisee) the right to operate a business using the franchisor’s established brand, system, and intellectual property. In Ontario, franchising is governed by the Arthur Wishart Act (Franchise Disclosure), 2000, which sets out the rules and obligations for disclosure, fair dealing, and remedies in the franchisor-franchisee relationship. Franchising is not a separate legal structure, but rather a contractual model layered on top of an underlying business entity—typically a corporation or a sole proprietorship. Most franchisees choose to incorporate before entering into a franchise agreement in order to limit personal liability and facilitate tax planning. The franchise agreement itself governs the relationship and outlines the franchisee’s rights, obligations, territory, fees, training, operational standards, and restrictions on competition.
One of the key legal features of franchising in Ontario is the mandatory disclosure obligation. Franchisors are required to provide a detailed Franchise Disclosure Document (FDD) to prospective franchisees at least 14 days before the franchisee signs any agreement or pays any money. The FDD must include financial statements, background on the franchisor and its officers, litigation history, fees, training programs, and copies of all agreements. If the franchisor fails to meet the disclosure requirements or provides deficient disclosure, the franchisee may have the right to rescind the agreement and recover losses. Franchising offers a pathway to business ownership with the backing of an established brand, proven business model, and ongoing support. For many entrepreneurs, it reduces the risk associated with starting from scratch. However, it also comes with strict compliance requirements, limited operational flexibility, and ongoing obligations such as royalty payments, advertising contributions, and adherence to franchisor policies. for more information about fanchise disclosure requirements, we invite you to read our article on the topic by clicking here.
How Jahanshahi Law Firm Can Help
Choosing the right business structure is a foundational decision that affects your legal risk, tax obligations, operational flexibility, and long-term success. Whether you’re launching a new venture, restructuring an existing business, or planning for growth, the implications of your structure must be carefully considered through both a legal and strategic lens.
At Jahanshahi Law Firm, we provide practical, forward-thinking legal advice tailored to your business goals. We work closely with entrepreneurs, professionals, real estate investors, and established business owners to evaluate structuring options, navigate regulatory requirements, and implement structures that protect your interests and position you for success. From sole proprietorships and corporations to joint ventures, trusts, and professional entities, we ensure that every aspect of your structure aligns with your tax, liability, and operational priorities.
Our firm takes a proactive, relationship-driven approach—ensuring not only that your business is properly formed, but that it is built on a strong legal foundation that will support its growth. Whether you need incorporation services, a customized shareholder agreement, a trust structure, or advice on entering a franchise or partnership, we’re here to guide you through each step with clarity and confidence.