Best company structure in Canada

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August 15, 2021

by a searcher in Toronto, ON, Canada

It's generally accepted that the best corporate structure for a searchfund operated company in the US is an S-Corp, where profits are passed through to the owner and reported on their personal income tax returns.

However, this type of a structure is not available in Canada. Corporations in Canada have to pay corporate tax on their profits. What then is the best structure to adopt in Canada? Is it a corporation or a sole proprietorship? or something else?

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commentor profile
Reply by a searcher
from Carleton University in Calgary, AB, Canada
The answer to your question depends on a lot of factors. If you plan to buy a Canadian business, you will probably have to buy shares (unless it is a very large deal, ~$10M+) since the tax benefits to the seller are very significant (no tax on first ~$0.9M of capital gains for each owner). For a search vehicle where you have outside investors, I would suggest a limited partnership. If you plan to create a holding company structure, then a corporation may be better. This is not tax advice, please consult your tax advisors.
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Reply by an intermediary
from New York University in New York, NY, USA
I cannot comment on Canada, but I would not say it is generally accepted that the S corporation is the best vehicle for owning a searchfund operated company in the US. The searchfunder could be giving up the benefit of being able to sell the company at some point free of income tax (up to $10 million in gain, at the least).
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