One of the first decisions every new entrepreneur faces is how to set up the business legally. Should you register as a sole proprietor, form a partnership, or incorporate? The right answer depends on your plans, your risk and how much you expect to earn.
Here is a simple overview of the three most common business structures in New Brunswick and what it takes to register each one.
Sole Proprietorship
A sole proprietorship is a business owned and run by one person. It is the simplest and least expensive way to start.
- How it works: You and the business are legally the same. Business income is reported on your personal tax return.
- Registration: If you operate under your own legal name, you are not required to register a business name. If you use any other name, such as “Moncton Pet Grooming”, you must register it with Service New Brunswick’s Corporate Registry by filing a Certificate of Business Name.
- Renewal: A registered business name must be renewed every five years.
- Keep in mind: You are personally responsible for the debts and obligations of the business.
A sole proprietorship is often a great way to test an idea and get your first customers. Learn more about registering a sole proprietorship.
Partnership
A general partnership is two or more people carrying on a business together.
- How it works: Each partner reports their share of the profit on their own personal tax return.
- Registration: Partnerships carrying on business in New Brunswick must register with the Corporate Registry. The registration must be renewed every five years, and changes to the partners or the firm name must be reported.
- Keep in mind: In a general partnership, each partner can be personally responsible for the debts of the business, including debts taken on by the other partners. A written partnership agreement is strongly recommended.
Learn more about registering a general partnership.
Corporation
A corporation is a separate legal entity from its owners. It can own property, sign contracts and take on debt in its own name.
- Limited liability: In most cases, shareholders are not personally responsible for the corporation’s debts.
- Lower tax rate on business income: Small Canadian-controlled private corporations in New Brunswick pay a combined federal and provincial rate of 11.5% on the first $500,000 of active business income. That is often much lower than personal tax rates, which can leave more money in the business to grow.
- Credibility: Some customers, suppliers and lenders prefer to deal with an incorporated business.
- More paperwork: A corporation files its own tax return every year, files an annual return with the Corporate Registry, and must keep an up-to-date minute book.
You can incorporate provincially in New Brunswick or federally across Canada. A named corporation needs a NUANS name search report, while a numbered company (such as “123456 N.B. Ltd.”) does not. See how incorporation in New Brunswick works.
Which One Is Right for You?
There is no single right answer, but here are a few general guidelines:
- Just starting out or testing an idea? A sole proprietorship keeps things simple while you find your footing.
- Going into business with someone else? Consider a partnership with a written agreement, or a corporation with a shareholders’ agreement.
- Earning more than you need to live on, or taking on real risk? Incorporation may make sense for liability protection and tax planning.
Many businesses start as sole proprietorships and incorporate later as they grow. Because every situation is different, it is a good idea to talk it through with someone who knows the process before you decide.
Other Registrations to Think About
Whichever structure you choose, you may also need:
- A Business Number from the Canada Revenue Agency
- HST registration once your taxable sales pass $30,000 over four consecutive quarters
- Any municipal licences or permits that apply to your type of business
Get Help Registering Your Business
Startup Greater Moncton founder Debbie Hawkes and her team at Business Incorp Canada help entrepreneurs register sole proprietorships and partnerships, order NUANS reports, and incorporate provincially or federally, with minute books and annual returns taken care of.
Call (506) 854-6490 or contact us and we will help you choose the right path for your business.