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A corporation is a legal entity with stockholders who are not affiliated with the company. Setting up a corporation is more complicated than registering a firm; decisions must be taken about the corporation's authority (federal vs. provincial), directors, shareholders, share structure, and owner-manager remuneration, among other things. The corporation is responsible for all debt commitments and pays corporate taxes. Finally, because a company is a separate "person," it has restricted responsibility as defined by Revenue Canada:


This means that, in general, a corporation's obligations are not the responsibility of its stockholders. A shareholder will not lose more than his or her investment if the business goes bankrupt (unless the shareholder has provided personal guarantees for the corporation's obligations).


Creditors also cannot litigate shareholders for the corporation's obligations (debts), despite the fact that shareholders are the corporation's owners. However, if a shareholder has another relationship with the business, such as a director, he or she may be accountable for the corporation's debts under certain circumstances.

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