6. Types of Business Formations

Characteristics of Successful Entrepreneurs

There are four common types of business structures in Prince Edward Island: sole proprietorship, partnership, corporation and cooperative. Each of these structures is described below. The structure you choose will depend on various factors, including the nature of your business, the level of control you intend to have and who you want to be legally responsible for the actions of your business.  

It is recommended that you seek legal advice before choosing your business structure.

Sole Proprietorship 

A sole proprietorship is a business owned and operated by one person. A sole proprietor is responsible for all aspects of the business, 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 Prince Edward Island, 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 under the Partnership Act.


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 and obligations – referred to as joint liability. You are required to register under the Partnership Act within three months of forming your partnership. 

Limited partnerships may be formed under the Limited Partnerships Act. A limited partnership consists of one or more general partners, who manage the business and have unlimited liability for the partnership’s debts and obligations, and one or more limited partners, who are not involved in the operations but may contribute capital with limited liability.

Corporation (Incorporated Company) 

Another type of business structure is a corporation. Unlike a sole proprietorship or partnership, a corporation, has a legal existence apart from its owners, the shareholders. You may either incorporate provincially under the Business Corporations Act or federally under the Canada Business Corporations Act. Generally, shareholders of a corporation are not personally liable for the debts and obligations of the corporation unless personal guarantees have been undertaken.

An unlimited liability corporation (ULC) may also be incorporated under the Business Corporations Act. A ULC is a corporation for Canadian tax purposes but may be eligible to be treated as flow-through entity for United States tax purposes. As the name implies, ULC shareholders have unlimited liability for the corporation’s debts and liabilities.

Extra-Provincial Partnerships and Corporations

A company formed or incorporated elsewhere must register with the Government of Prince Edward Island in order to conduct business in the province.

Non-Profit Companies 

Non-profit companies can be incorporated by letters patent under Part II of the Companies Act. Non-profit companies have members but do not have share capital.


A co-operative is a separate legal entity incorporated under the Co-operative Associations Act. A co-operative is organized and owned by a group of people seeking to satisfy common needs through shared goods and services or combined available resources. Each member of a co-operative is entitled to one vote, thus the power of all members is equal.

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