The legal structure of your business can be one of 4 things, Sole Proprietorship, Partnership, Corporation or Cooperative. The most common three are listed. See below to see a description of each type.
Sole Proprietorship: If you are a sole proprietorship, 100 percent ownership is held by you the owner. Your record keeping and reporting period will be January to December. You and your business are considered one and the same for taxes and income.
Partnership: For partnerships, a January to December record keeping and reporting period is also used. A partnership agreement (formal or informal) is required and for some types of financing, you will need 51% ownership as the principal applicant on most loan and government programs. It is a best practice to have a contract for business continuation. This is used when partners disagree and the business is at risk of being terminated or sold. By having this in the contract, there is an agreed upon way to deal with the disagreement and keep the business intact.
There are different partnership structures.
Silent Partner: When one partner is an investor in the business and has no say about the day to day operations.
Working Partner: When one or more of the partners are actively working in the business.
Non-Working Partner: When one or more of the partners are not actively working the business however still provide advice, guidance and input.
Depending on the role of each partner, the revenue may be shared as outlined in the partnership agreement. When one partner wants to sell, the other partner(s) has the first option to buy their part of the business.
Corporation: A corporation is a separate legal entity from you personally. You will have incorporation documents completed with the assistance of a lawyer that show who are the shareholders, and confirming you year end for tax purposes, which can be any 12 consecutive months. Reasons to incorporate include: Limiting your liability, tax implications, or desiring a reporting and accounting period other than January to December.
The Government of Canada website details the advantages and disadvantages of the different types of ownership. As well, it provides information on incorporating your business depending on which province the head office of the business is located.
Most businesses, when starting up, start as sole proprietors and then some may transition into another status, usually a Corporation.