Other Kinds of Firms

When you start a company in Canada, one of your first decisions is whether to incorporate federally or provincially. Most first-time founders treat this as a paperwork question, but it is not. The legal structure you choose encodes assumptions about who controls the company, who benefits when it succeeds, and who bears the cost when it fails. Those assumptions vary enormously across history and across cultures, and the fact that most tech companies make the same choice tells you something about whose interests the dominant model serves.

A sole proprietorship is the simplest possible firm: one person owns it, operates it, and is personally liable for everything it does. If the business gets sued and loses, the owner’s house, car, and savings are all at risk. Most small businesses start this way because there is no registration required— you are in business the moment you start selling something, though you must register your business name in most provinces if you are trading under a name other than your own.

A partnership divides ownership between two or more people. In a general partnership, all partners share liability; in a limited partnership, the limited partners risk only what they invested, while the general partner remains fully exposed. Law firms, accounting firms, and investment funds have historically used partnership structures, partly because unlimited personal liability concentrates the minds of the partners wonderfully.

The limited liability corporation is the dominant modern form, and its history is stranger than most people realize. Joint-stock companies with limited liability appeared in England and the Netherlands in the early 1600s. The Dutch East India Company, founded in 1602, is often called the world’s first publicly traded corporation: it issued shares to outside investors, its shareholders could not lose more than they invested, and those shares were traded on what became the Amsterdam Stock Exchange. The whole structure was designed to let wealthy merchants finance long and risky trading voyages without betting their entire fortunes on any single ship. Limited liability is a legal invention, created by governments to encourage private investment in ventures too expensive for any one person to fund alone.

A public benefit corporation (PBC) is a newer form, legally requiring the company to consider the interests of employees, communities, and the environment, not just shareholders. The practical difference from a regular corporation is small in good times but matters when a company faces acquisition pressure or demands for short-term earnings.

A cooperative is a firm owned and governed by its members, whether those members are workers, customers, or both. Profits are distributed as dividends proportional to participation rather than to capital invested. This fundamentally changes the incentive structure: a worker-owned cooperative has no absentee shareholders extracting returns, and no structural pressure to cut wages in order to improve margins.

The most ambitious experiment in worker ownership at scale is the Mondragón network, founded in the Basque region of Spain in 1956 by the Catholic priest José María Arizmendiarrieta. He started with a handful of workers and a small stove factory. By 2024, the Mondragón Corporation employed roughly 80,000 people across manufacturing, retail, finance, and education, making it one of the largest worker cooperatives in the world. When the 2008 financial crisis hit Spain particularly hard, Mondragón moved workers between enterprises rather than laying them off—a flexibility conventional firms didn’t consider because ownership and employment were the same people.

Consumer cooperatives own the firm on behalf of their customers. In Switzerland, Migros and Coop together hold a majority of the grocery market, both as consumer cooperatives. Credit unions—the most common form of cooperative in Canada—are owned by their depositors and return surplus to members rather than to outside shareholders. Cooperatives can face difficulties raising capital can develop their own forms of bureaucratic inertia, but they show that the investor-owned model is not the only way to organize a business.

Germany’s large manufacturing firms operate under Mitbestimmung, the codetermination system in which workers hold legally mandated seats on corporate supervisory boards. At firms with more than 2000 employees, workers elect half the supervisory board. This is not a concession extracted by labor: it was formalized in law in 1976 and has been a stable feature of German capitalism for fifty years. The Mittelstand (Germany medium-sized family-owned manufacturers) often combine this formal worker representation with multi-generational ownership that is structurally indifferent to quarterly earnings reports.

Japan’s keiretsu are networks of interlocked companies that hold shares in one another, maintain long-term trading relationships, and are often anchored around a major bank. Toyota sits at the center of one of the largest, with dozens of suppliers holding Toyota shares and Toyota holding shares in them. This mutual cross-shareholding insulates management from hostile takeovers and creates strong incentives for long-term investment in shared production quality, but it also insulates management from accountability when things go badly wrong, as Japan’s long economic stagnation after 1990 demonstrated.

The Islamic waqf is a form of charitable endowment with no direct equivalent in Western legal systems. Property dedicated as a waqf cannot be sold or inherited; instead, its income must be applied to specified charitable purposes in perpetuity. Universities, hospitals, mosques, and public fountains across the Middle East and Central Asia were historically funded through waqf endowments. At their peak in the Ottoman Empire of the eighteenth century, estimates suggest that as much as a third of agricultural land was held as waqf. European colonialism systematically dismantled waqf structures across North Africa, the Levant, and South Asia, converting endowed property to state ownership or private title—a transfer of wealth whose scale is rarely recognized.

In India, the Hindu Undivided Family (HUF) has been a recognized legal entity for tax and property purposes since British colonial administration codified it in the nineteenth century. An HUF is not a firm in the Western sense but a patrilineal kinship group that can own property, run a business, and have its own tax identity. Tata, Birla, and other major Indian conglomerates grew from family-business structures in which the boundary between the family and the enterprise was deliberately blurred.

Despite the availability of federal and provincial incorporation, a significant number of Canadian tech startups that raise venture capital end up reincorporating as Delaware C-corporations. The reason is not that Delaware law is superior. It is that American venture capital funds, the dominant source of growth-stage capital, require Delaware C-corps because their legal documents were drafted for that structure, their lawyers know it, and their limited partners expect it. A Canadian founder who takes US venture money often has to execute what is called a “Delaware flip”: creating a new Delaware holding company above the existing Canadian entity, transferring the intellectual property, and essentially making the company American on paper. This is an expensive process that produces no operational benefit for the company; it is pure path dependency imposed by the capital markets.

What tech companies on both sides of the border have innovated on is not the basic corporate form but the voting structure within it. Dual-class share structures, in which founders hold shares with ten or more votes each while public investors hold shares with one vote, have become standard in major tech IPOs. When Google went public in 2004, Larry Page and Sergey Brin wrote a letter to shareholders explicitly explaining that they intended to run the company unconventionally and that investors who disagreed should not buy the stock. Shopify, Canada’s largest tech company, used a similar structure: Tobi Lütke holds Class B shares with ten votes each while public shareholders hold Class A shares with one vote. The practical effect is that founders retain effective control regardless of how many shares they have sold: the company is publicly traded but not publicly governed, which is exactly what most founders want.

The usual excuse for why tech companies aren’t worker cooperatives or other equitable structures is that cooperative governance is too slow and cooperative financing too limited. This explanation is conveniently incomplete. It omits the fact that the founders, lawyers, and venture capitalists making the choice benefit most from the conventional structure. A Delaware C-corp with dual-class shares concentrates decision-making authority and financial upside in the hands of a small number of people at the top. Describing this as a neutral response to market conditions, rather than as a choice made by self-interested parties who control the available alternatives, takes a certain kind of nerve.

Silicon Valley has developed an elaborate ideology to justify the arrangement. The founding team are visionaries whose judgment must be protected from short-term market pressure; the employees are passionate craftspeople who are compensated with equity so that their interests are aligned with the company’s success. In practice, the equity granted to employees is typically worth a fraction of what founders and early investors receive, and vests on a schedule designed to retain rather than reward. Worker cooperatives, codetermination boards, and profit-sharing arrangements work—Mondragón has been running for nearly seventy years—but they distribute power rather than concentrating it, which is precisely why you will not find them recommended at Y Combinator.

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Bakan200t

Joel Bakan: The Corporation: The Pathological Pursuit of Profit and Power. Simon and Shuster, 2005, 978-0743247467.

Cassidy2025

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