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What is a Small Business in Canada?

Small businesses play an incredibly important role in Canada’s economy. 

They contribute significantly to the country’s gross domestic product (GDP), create jobs, promote innovation and generate income for their owners. 

This article will explain what a small business is, how it is defined and regulated in Canada, and the common characteristics of small enterprises. 

It will also discuss the various benefits of owning a small business in Canada and some key challenges entrepreneurs face when starting their own venture.

What is a Small Business In Canada? 

A small business in Canada is a business that typically has fewer than 100 employees or less revenue than larger businesses. 

It is usually independently owned and operated, with the owners often taking part in day-to-day operations. 

Small businesses are the backbone of the Canadian economy, accounting for 98% of all businesses and employing 8 million Canadians. 

Small businesses are essential for job creation and economic growth, as they help to diversify local markets and sustain communities across Canada.

They also provide goods and services to a wide range of customers while creating jobs that often pay better wages than what larger companies might offer. 

Additionally, small businesses can benefit from government grants and programs aimed at helping them succeed such as financing options, tax credits, training resources and more. 

Things you didn’t know about Canadian small businesses

  • There were 1.22 million SMEs in Canada as of December 2020.
  • Out of the 48,325 Canadian establishments that exported goods in 2020, the vast majority (97.5%) were SMEs. They produce 43% of the total value of Canadian exports.
  • SMEs employ 88.3% of Canada’s working individuals in the private labour force.
  • More than half of Canadian businesses (55.3%) have fewer than four employees. They are known as “micro-enterprises.” 73.9% have fewer than 10 employees.
  • Ten years after their establishment, female-led businesses had a lower survival rate than those led by males (57.5% and 61.9%, respectively). However, equally owned businesses had the highest rate at 68.6%.
  • More than two-thirds (67.9%) of new businesses in Canada survive to see their fifth year of operations.
  • 10 years after opening, about half (49.6%) of good-producing businesses are still operating, compared to 44.6% of services-producing businesses.

Types of Small Businesses in Canada 

a. Sole Proprietorship 

A sole proprietorship is a type of small business that is owned and operated by one individual. 

These businesses are the most common type of business in Canada, representing 98 percent of all Canadian businesses. 

The advantages of sole proprietorships include having complete control over the decision-making process, not needing to pay corporate taxes, and being able to keep any profits earned after expenses are deducted. 

The main disadvantage is that a sole proprietor is personally liable for any debts or liabilities incurred as a result of their business operations. 

This means that if debts or losses are associated with the business, personal assets can be taken to satisfy them. 

Although this form of small business has fewer legal requirements than other types such as partnerships and corporations, it still requires registering with federal and provincial government departments in order to operate legally in Canada. 

b. Partnership 

Partnerships are an important aspect of small business in Canada. 

Through partnerships, two or more individuals can come together to create and operate a business with shared resources and responsibilities. 

This type of arrangement allows entrepreneurs to pool their individual talents, skills, and financial resources to form a company that operates under one entity. 

Partnerships also allow business owners to share the risk associated with running a business, making them less risky than sole proprietorships for those involved. 

Additionally, partners may be able to use the partnership structure to raise capital or expand operations without taking on large amounts of debt. 

In these cases, each partner needs to understand how decisions will be made and how profits will be shared before forming the partnership agreement.

When done correctly, partnerships can provide small businesses in Canada with strong foundations to grow and succeed over time.

c. Corporation 

A corporation is a type of business entity that is completely separate from its owners. 

In Canada, corporations are registered with the federal government or individual provincial governments. 

Unlike sole proprietorships and partnerships, which individuals own, a corporation can have multiple shareholders who own shares in the company. 

Corporations in Canada must issue shares to at least one shareholder and may have up to fifty. Additionally, they must be governed by a board of directors that consists of at least four members. 

Unlike small businesses, corporations are subject to much stricter regulations regarding taxes and other legal obligations. 

For example, they need to file annual corporate income tax returns as well as financial statements with both provincial and federal governments. 

These documents must show how the corporation earned revenue and how it has complied with all applicable laws. 


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