Choosing your business structure

There are four common types of business ownership. Which structure you choose will depend on key factors; the nature of your business operation, whether you prefer to have full control of your business or want to share management responsibilities, and who you want to be responsible for the actions of your business - you or your company as a separate legal entity. Each of the four structures - partnership, sole proprietorship, corporation and cooperative - is described below.

Partnership

A partnership is an association of two or more persons who operate as co-owners of a business with the understanding that they will share, proportionately, the profits and losses. Upon formation, a partnership agreement outlines the rights, interests and responsibilities of each partner. Partners have unlimited liability for the partnership’s debts—referred to as joint liability.

Who should I contact about forming a partnership?

It is recommended that you seek legal advice before preparing and signing a partnership agreement. Within three months of forming your partnership, you are required to register your business with the Province of PEI in accordance with the PEI Partnership Act

Sole Proprietorship

A sole proprietorship is a business owned and operated by one person (self employed). As a sole proprietor you exemplify the classic definition of an entrepreneur. You are in charge of the company and responsible for all aspects of the business: securing capital, managing day-to-day operations, paying wages, and assuming all risks as well as all profits or losses. All assets of a sole proprietorship, both business and personal, can be legally called upon to discharge a liability.

In PEI, you can operate a sole proprietorship without registering a business name only if it is operated under your own name.  If a prefix or suffix of any kind is added to your own name to create the business’ name, you are required to register your business with the Province of PEI in accordance with the PEI Partnership Act.

Corporation (Incorporated Company)

Unlike a sole proprietorship or partnership, a corporation, created by charter, has a legal existence apart from its owners. No employee, shareholder or director of the incorporated company can be held liable for any debts, obligations or actions of the company unless personal guarantees have been undertaken. (A personal guarantee is commonly required to obtain loans from financial institutions for a new business start-up.)

As long as your corporation’s business activity is confined to PEI, you need only incorporate under the Companies Act of Prince Edward Island. If you conduct business in other provinces, you may be required or find advantages to incorporate federally under the Canada Business Corporations Act.

Co-operative

A co-operative is a corporation organized by a group of people with similar needs in order to improve their incomes through shared goods and services or combined available resources. Each member of the co-operative is entitled to one vote, thus the power of all members is equal.

Who do I contact about registering my company?

Corporations Officer

Corporate Services
Department of Justice and Public Safety
Shaw Building, Center, 4th floor
PO Box 2000
Charlottetown, PE C1A 7N8

Telephone: (902) 368-4509
Fax: (902) 368-5283
Email: jmmackay@gov.pe.ca