Written by: Josh Buchanan, Magnaltus Consulting
If you plan to start a business, or are already operating a business in Saskatchewan, your business must operate under one of the available forms of legal structures. There are several different options for legal structures, and choosing the best one for your business depends on a number of factors.
Some of the most important considerations when determining a suitable legal structure for your business include: how many owners there will be, the industry in which the business operates, the level of personal risk and liability the business owners are comfortable with, the financial performance of the business, and the goals and preferences of the owners.
By default, any individual conducting business activity is operating under a legal structure known as a “sole proprietorship” which simply means single owner. Individuals who conduct business as a sole proprietor have the option to operate the business under their personal legal name, or to register a business name – also known as a trade name or DBA (doing business as).
The sole proprietorship is the simplest legal structure and one of the most common. The other two most common legal structures are the partnership, and the business corporation.
Sole Proprietorship – owned by one individual where there is no legal separation between the business and the owner. The financial activity of the business is reported on the individual’s personal tax return, and all assets, liabilities, sales tax accounts, bank accounts, and other business accounts are registered directly to the human entity.
Partnership – owned by two or more individuals where there is no legal separation between the business and the owners. The financial activity of the business is split between the owners and reported on their personal tax returns. The assets, liabilities, sales tax accounts, bank accounts, and other business accounts are registered directly to the human entities.
Corporation – a separate legal entity from the human entities where the owners are registered shareholders in the business. The financial activity of the business is reported on a corporate (T2) tax return which is separate from the personal tax returns of the shareholders. The assets, liabilities, sales tax accounts, bank accounts, and other business accounts are registered to the corporation directly, and not to the shareholders.
Sole proprietorships, partnerships, and corporations all present different pros and cons and will meet the needs of the majority of businesses. However, in special cases, other specialty legal structures may be more appropriate.
Co-operative – a co-operative is a separate legal entity from the owners. However, co-operatives have a democratic-style ownership structure where there are no formal shares. Instead, there are members who all have equal voting rights in the decision making of the business. Co-operatives are most suitable when multiple individuals or businesses want to work together to pool resources to achieve a common goal of the members.
Limited Partnership – similar to a regular partnership, a limited partnership has more than one owner. However, in a limited partnership, there is at least one general partner with management responsibility and unlimited liability, and one or more limited partners. Limited partners simply provide investment but have limited liability and no involvement in the management or daily operations of the business.
Limited Liability Partnership – under this legal structure, the partners (owners) are generally not held personally liable for their partners’ business debts, obligations, or negligence, but they are still liable for their own actions. In Saskatchewan, limited liability partnerships are generally restricted to the following professions: doctors, surgeons, lawyers, podiatrists, psychologists, professional accountants, engineers, geoscientists, and applied science technologists.
Professional Corporation – this form of corporation is restricted to service providers in specific industries in Saskatchewan including: chiropractors, dentists, doctors, surgeons, lawyers, occupational therapists, optometrists, physical therapists, podiatrists, psychologists, real estate agents, veterinarians, and chartered professional accountants.
Non-profit Corporation – a type of corporation that is designed to carry on activities that benefit the members of the corporation and/or the public. Non-profit corporations do not have shareholders and the profits must be used to further the goals of the group rather than be paid out to the members.
It is possible to change from one legal structure to another once the business has been registered. Changing legal structures may be appropriate in cases such as if the ownership of the business changes, the owners want more tax flexibility and liability protection, or if the business changes from one owner to multiple, or multiple owners to one single owner.
Choosing a Business Name
Once you’ve chosen your legal structure, you can determine the appropriate business name. You may have already had one chosen, however, anytime business is conducted under a name that is different from the legal name of the business entity, the name must be registered with Saskatchewan’s corporate registry. Businesses that operate under an unregistered name are subject to significant penalties imposed by the Saskatchewan Ministry of Justice.
Human entities conducting business activity may operate under their personal legal name without registering their business, and corporations may conduct business under a numbered corporation name without registering a business name. However, anytime a business name is being used, it must be registered.
In order to have a business name registered, it must meet the following criteria:
- Descriptive Element – the business name must include an element that explains what type of business will be Eg. plumbing, marketing, construction, photography, cleaning, etc.
- Distinctive Element – the business name must include an element that distinguishes the business from others that provide the same or similar goods and services. Eg. John’s, Classic, Elevate, etc.
- Legal Ending – for business structures such as corporations, limited liability partnerships, and professional corporations, specific legal endings are required. Examples are LLP in the case of limited liability partnerships, and , Inc., or Corp., in the case of regular business corporations.
Once a business name has been chosen, it can be submitted to Saskatchewan’s Corporate Registry, the Information Services Corporation (ISC) for approval. In addition to meeting the mandatory criteria, the name must also be different enough from other registered business names provincially and federally-registered corporations.
Obtaining approval of a business name in Saskatchewan provides a 90-day reservation period to then register or incorporate the business under the approved business name. Failure to complete the registration process within 90 days will result in the name reservation being lost. Once registered or incorporated, that business name is protected across the province and no other businesses can register an identical name or a name that is considered similar by the ISC.
It is important to note that the legal structure of the business must be determined before applying for the business name. The steps for applying for business names are slightly different for each legal structure. To maintain the registration of a business name, renewals must be filed every three years in the case of unincorporated businesses, and every one year for corporations.