What is Corporate Structure?

A corporate structure represents the arrangement or plan of different departments, divisions, and job positions in a particular business organization. The concept of corporate structure is to ensure that all tasks are conducted based on company policies. It also provides communication lines and authority for general functions of the company.

The article will tackle the importance of putting in place corporate structures, proper selection of business structures and the types of corporations in Canada.

What does the Corporate Structure Attain?

Wise Geek states that the corporate structure helps accomplish three things:

• Corporate layout which defines all areas of responsibility within the company.. Provisions for executive, managerial, and administrative matters are also normally accounted for in a corporate structure so that everyone in the organization knows how an issue should be addressed.
• A corporate structure also helps to establish a line of communication for employees to utilize and provides reference points for the handling of various functions,
• The corporate structure helps to establish a working chain or line of authority. Corporations often require responsible persons placed at various points in the structure to ensure tasks are managed properly and in accordance with company by-laws.

What is a Business Structure?

There are three fundamental structures in Canada that should influence your business. Of course the correct structure for your enterprise will depend on the legal aspects, business location and taxation issues and concerns.

There are three variations of the fundamental business structure:

Sole Proprietorship

A sole proprietorship is the simplest form of a business organization. It is a non-incorporated business owned by one person. Its liabilities are the personal liabilities of the business owner. As the business owner you undertake the risks of the business for all assets owned. It does not matter whether the assets were for personal use or part of your business. You include the income and expenses of the business on your personal tax return.

Partnership
A business partnership exists between people who operate a common venture. Each person contributes money, property, labour, or skills, and expects to share in the profits and losses of the business. It is important to note that you can have a partnership without a written contract.

Corporation
The corporation is the most popular business structure in Canada. It is a separate legal entity and can enter into contracts and own property in its own name, separately and distinctly from its owners. Since a corporation has a separate legal existence, it has to pay tax on its income, and therefore must file its own income tax return.
A corporation can be created under two jurisdictions:

• Under provincial law - If the business will operate in only one province, the company is incorporated provincially.
• Under federal law - Companies that plan to do business across Canada must be incorporated under federal law and sometimes under provincial law. Some types of business, such as banks, are subject to industry-specific legislation.

What are the types of Corporations in Canada?

The Corporation is the most popular business category in Canada. Corporations are also taxed differently than other forms of business. The most obvious tax change is that as a corporation is a legal entity in itself. The corporation is taxed separately from the individual.

Types of Corporations in Canada

The Canadian-controlled private corporation (CCPC) has to be private. It also has to meet all of the following:
• It is a corporation that was incorporated in Canada or resident in Canada from June 18, 1971 to the end of the tax year.
• It is not controlled directly or indirectly by one or more non-resident persons.
• It is not controlled directly or indirectly by one or more public corporations (other than a prescribed venture capital corporation, as defined in Regulation 6700).
• It is not controlled by a Canadian resident corporation that lists its shares on a designated stock exchange outside of Canada.
• It is not controlled directly or indirectly by any combination of persons described in the three previous conditions.
• If all of its shares that are owned by a non-resident person, by a public corporation (other than a prescribed venture capital corporation), or by a corporation with a class of shares listed on a designated stock exchange, were owned by one person, that person would not own sufficient shares to control the corporation.
• There is no class of its shares of capital stock is listed on a designated stock exchange.

Other Private Corporations

This type of corporation also has to be private. It must also meet all of these conditions:
• It is not controlled by one or more public corporations (other than a prescribed venture capital corporation, as defined in Regulation 6700).
• It is not controlled by one or more prescribed federal Crown corporations (as defined in Regulation 7100).
• It is not controlled by any combination of corporations described in the two previous conditions.

Public corporation

A public corporation is basically defined by having a class of shares listed on a designated Canadian stock exchange although it may also elect to be designated as a public corporation under Regulation 4800(1).

Maintaining the Corporate Structure

Members of corporate institutions should realize the importance of maintaining the integrity of the corporate structure. This is vital in ensuring that the company achieves its short and long-term goals.

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