There are three (3) main types of business structures available to e-commerce sellers in Canada:

Sole Proprietorship

With the sole proprietorship business structure, you and your business are not separable. Business assets are your assets and business losses are your losses. This simplifies accounting and tax filing for a business and will result in lower accounting bills.

However, this business structure does not allow for long-term tax planning and does not protect your personal assets from business-related liabilities.

This is the simplest business structure. You can start operating your business as a sole proprietorship under your personal name without any additional registrations or business licenses.

You can operate your sole proprietorship under a business name as well. For that, you will need to register your business name with your provincial business authorities and obtain a business license.

Partnership

Similar to sole proprietorship, a partnership is also a flow-through entity. It does not get taxed separately and all net profits are distributed to partners according to their ownership percentage.

Partnerships have a lower compliance cost compared to corporations. There may be multiple partners involved in the business and the cost of tax work can be significantly less compared to that of a corporation.

There are general and limited partnerships that you can operate. If you operate a general partnership, all members will be equally liable for damages and losses of the partnership with unlimited liability. In a limited partnership, non-active partners are only liable for damages up to their investment amount into the venture (hence the name “limited partnership”).

As you can see, partnerships simplify the compliance process but result in unlimited liability for general partners. In addition, a partnership agreement is strongly recommended to avoid disputes and major disagreements between partners in the future.

Corporation

A corporation is considered to be a separate legal entity with its own constitution (Articles of Incorporation), investors/owners (Shareholders), oversight mechanism (Board of Directors) and management (Officers).

It can be formed and operated independently of owners. It can be sold and can be sued as a completely separate legal entity.

Because of that, the corporate legal structure has several advantages and disadvantages that will be discussed further in this article.

These quick illustrations demonstrate how business liability is divided between the owner and the business entity.