• One owner
• Unincorporated
• Personal income tax on profits
• Unlimited liability

Often referred to as a sole trader, a sole proprietorship is an unincorporated business with just one owner who pays personal income tax on profits earned. Any debts or losses incurred cannot be shared with other individuals. It is the cheapest and easiest business structure to establish, with the individual legally responsible for all aspects of the business.

Simplest and most cost-effective structure, but comes with full personal liability for business debts.

• Two or more parties
• Shared responsibilities and profits
• Relatively inexpensive to set up

A partnership is a formal arrangement between a group or association of two or more parties to manage a business and share its profits. A partnership is relatively inexpensive to set up and operate. All partners share income, losses, and control of the business.

Allows for shared management and resources, with shared profits and losses.

• Two or more individuals
• Shared responsibilities and liabilities
• Unlimited liability

A general partnership is a business arrangement whereby two or more individuals agree to share responsibilities, assets, profits, financial and legal liabilities of a jointly owned business, granting unlimited liability.

Shared management and resources, but all partners are fully liable for business debts.

• Limited and general partners
• Limited liability for some partners
• Unlimited liability for managing partners

In a limited partnership some partners are not entitled to manage its affairs but provide all or part of the partnership's capital. These partners are limited in their liability. In addition, one or more other partners are nominated as managing or general partners and have unlimited liability for the partnership's debt and losses.

Allows for investment with limited liability, while maintaining active management with unlimited liability.

• Separate legal entity
• Limited liability for owners
• Can possess rights of individuals

A corporation is a legal entity which is distinct from its owners and yet may possess the rights and responsibilities of individuals despite having limited liability.

Offers limited liability protection and separate legal entity status.

• Directories of Canadian Companies

Corporate information can be found at the Directories of Canadian Companies: www.canadasbusinessregistries.ca.

Use the Directories of Canadian Companies as the primary source for official company information in Canada.

• Directories of Canadian Companies
• Private reporting agencies

You can obtain information on the financial state of affairs for companies and industry at the Directories of Canadian Companies. There are also numerous private reporting agencies offering credit checks.

Combine official data from the Directories with reports from private agencies for comprehensive financial information.

• Credit reports
• Online services

Normally you find this information in a credit report. Credit reports are offered as a service online.

Utilize online credit report services to check for existing judgments against businesses.

• Certified copies of supporting documents
• English or French translations
• Authentication by notary or expert affidavit

In order to start legal proceedings, you will require certified copies of all documents that support your claim, including any documents relevant to any dispute. These documents must be in English or French and must bear authentication by a notary or an affidavit by an expert if they have been translated from another language. Security costs may be required to cover any costs should the debtor be successful or if the creditor does not reside in the specified provinces.

If witnesses are required, phone or video conferencing services may be provided. These are basic requirements and may vary from province to province and from territory to territory.

Ensure all documents are properly certified, translated, and authenticated. Be prepared for potential security costs.

• Seller retains ownership until conditions are met
• Provides security against buyer's default or insolvency

When included in trade contracts, retention of title allows the seller to retain ownership over the goods supplied until certain contractually defined conditions are met, therefore providing the seller with a form of security against the buyer's default or insolvency.

Consider including retention of title clauses in contracts for additional protection against buyer default or insolvency.

• Not mandatory, but recommended
• Specific content requirements

A warning notice to the debtor is not mandatory before filing any enforcement claims. Good practice dictates that a notice should still be given which contains:

• Creditor name and overview of the claim
• The total amount of the claim, including penalties (interest)
• Payment method required
• A warning that the claim will be enforced through the enforcement authority in case the claim is not settled by the required date
• Information on how to dispute the claim

If this measure has been taken and the payment still has not been made after a notice period, the creditor may file for enforcement.

While not mandatory, sending a comprehensive warning notice is recommended before initiating legal proceedings.

• Interest allowed if in contract
• 60% maximum interest rate
• Collection costs not allowed unless agreed

If the terms and conditions of the contractual agreements between you and your debtors contain a clause that permits the collections of interest costs, then they may be added to the overall debts - Canada's Criminal Code makes it a crime to set an interest rate above 60%.

Unless already agreed to in signed contracts, the addition of collections costs is not allowed under Canadian law.

Include interest clauses in contracts, but be aware of the 60% maximum rate. Collection costs must be agreed upon in advance.

• 2-6 years, depending on province

The limitation period for overdue debts is two to six years depending on the province of Canada.

Check the specific limitation period for the relevant province and act within that timeframe.

• Mediation
• Arbitration
• May be required in some provinces

In certain provinces and jurisdictions, creditors are required by law to utilise ADR methods prior to lodging any court debts. Such methods include mediation and arbitration.

In mediation a neutral third party from is required to help creditors and debtors agree to the settlement of an open unpaid debt based on supporting evidence and documentation. The mediator usually has no decision-making powers and cannot impose a binding conclusion or settlement on the parties.

In arbitration, parties may submit any dispute for settlement assuming this is stated within signed contracts between the affected parties. Parties must agree on dispute settlement and obtain a judgement from the neutral arbitration court which would hence be granted an enforcement clause.

Consider ADR methods, especially if required in your province. Include arbitration clauses in contracts when appropriate.

• Provincial jurisdiction for commercial law
• Small claims court for debts under CAD 25,000
• Superior court for larger debts
• Pre-trial procedures in some provinces

Under the Canadian constitution, commercial law is generally within provincial jurisdiction. Certain exceptions exist, such as interest, currency, bankruptcy, and insolvency, which are governed under federal law.

Different provinces and territories have different proceedings and rules in each court. Those cases with a debt value less than CAD 25,000 are handled in small claims court, whereas anything greater is filed with the superior court.

Some provinces require pre-trial procedures to be executed such as 'examinations for discovery', and their purpose is to ensure that all detrimental information related to the debtor is available for the court. Other provinces, offer the opportunity to call settlement conferences at later stages within legal proceedings.

Be aware of the different court levels and procedures in each province. Prepare for potential pre-trial procedures.

• Up to one year or longer

Court procedures can take up to one year or longer subject to the case and the availability of the involved parties.

Be prepared for potentially lengthy legal processes, which can extend beyond a year.

• Varies by province and territory
• Dependent on debt value and debtor location
• Range: CAD 450 to CAD 6,000 before extrajudicial costs

Court costs vary for each province and territory. In general, the cost is dependent on the total debt value and the debtor's location. This can range from CAD 450 to CAD 6,000 before any extrajudicial costs such as witnesses or expert involvement.

In the event where the debtor loses their defence, all or the majority of the costs of the case are charged to the debtor. Court fees, expert costs, witness fees, and copying costs are recoverable in some provinces.

Budget for potentially high court costs, but be aware that these may be recoverable if successful.

• Writ of seizure and sale
• Garnishment order
• Writ of sequestration
• Examination in aid of execution

To enforce a local judgement, a creditor may:

• Obtain a writ of seizure and sale, which is an order empowering the local sheriff or bailiff to seize and auction the debtor's moveable assets.
• Obtain a garnishment order from the court, forcing the redirection of third-party income towards the debtor into the creditors account to clear the debt.
• Obtain a writ of sequestration, which permits the sheriff to visit the debtor's premises and seize possession of the debtors' assets.
• Initiate an examination in aid of execution to obtain information necessary information on a debtor's assets.

A court in any province or territory can action any of the above for the jurisdiction of another court.

Be aware of various enforcement options available and choose the most appropriate for your situation.

• Liberal approach to recognition
• Specific requirements for enforcement

Common law determines the treatment of foreign judgments, on which has a liberal approach to the recognition and enforcement of foreign judgments. The Supreme Court of Canada has stated the requirements as follows:

• The judgment must be final and binding. i.e. If the judgment is under appeal, courts may decline any action.
• The judgment must be for a specific monetary value. Although the law may still permit a non-monetary foreign judgment depending on the case.
• The court granting the judgment must have had jurisdiction over the parties and the cause of action.
• The enforcing action must begin within the appropriate limitation period.

A judgement shall only be granted in Canadian dollars, and the date on which a court will convert the currency to Canadian dollars varies by province.

Ensure foreign judgments meet all requirements for enforcement in Canada. Be prepared for currency conversion to Canadian dollars.

• Bankruptcy and Insolvency Act
• Office of the Superintendent of Bankruptcy
• Licensed trustees required

The Bankruptcy and Insolvency Act caters for the legal proceedings for insolvency cases. This act is administered by the Office of the Superintendent of Bankruptcy at federal level. Only a trustee or practitioner licensed in bankruptcy by the Superintendent of Bankruptcy may handle the process of proposals and bankruptcies.

Understand that insolvency proceedings are governed by federal law and require licensed professionals.

• Proposal
• Bankruptcy
• Receivership
• Company Creditors' Arrangement Act

There are four main insolvency options:

• Proposal: A settlement proposal is extended to all creditors with open unpaid debts.
• Bankruptcy: In bankruptcy the debtor company's assets are liquidation with any cash proceeds used to settle outstanding debts with creditors based on priority. Liquidators require a proof of claim to be submitted by creditors within the designated timeframe.
• Receivership: A 'receiver' is appointed as responsible for all of the assets of the debtor party on behalf of the secured creditors. Once an audit is complete, the company may operate under the receivership, or the receiver can petition the company for bankruptcy.
• Company Creditors' Arrangement Act: The debtor company and unsecured creditors reach a settlement agreement with regards to the outstanding debt. This long process involves court involvement to assign administrators, creditor meetings, witnesses, etc.

Be aware of the different insolvency options and their implications for creditors. Act promptly when submitting proofs of claim in bankruptcy proceedings.