Below are some of the steps to starting a business and the steps to starting a small business in Canada are as follows:
How should you Set Up Your Business
There are a number of different types of business models including sole proprietorships, partnerships, incorporation, non-share corporation, charities. For more specific information refer to incorporations, sole proprietorships, and partnerships.
Review the Pros and Cons of Each Business Model
The advantages of a sole proprietorship are low start-up costs, easy formation, less government filings, you are your own boss, low start up capital in most cases, there may be a tax advantage and you keep the profits for yourself. The disadvantages are that you do not have others' experience and knowledge to help you and have to rely only on your own skills, sole proprietorships die when the sole proprietor stops running the business, personally liable for any expenses and costs from lawsuits, etc. and more difficult to get approval from a bank for funds.
The advantages of a partnership are that you have more than one person to help the business be successful each with his or her own skill set, low start-up costs, easy formation, additional money being brought into the business and less government filings. The disadvantages are that unless you have a partnership agreement saying otherwise the partnership ends when one party leaves or dies, personal liability for each of the partners actions and as a group for any expenses, costs from lawsuits, hard to find suitable partners and difficulty in raising capital.
The advantages of forming a corporation are that unless you sign a personal guarantee you and all of the other shareholders are not liable personally for the losses of the company except with respect to what you inputted in the business, many more individuals with specialization, you can sell the business for a profit in the future, a company stays into existence regardless of whether one of the shareholders decides to leave and it is easer to raise money. The disadvantages of incorporating a business are that there are more government filings required, more expensive to set up, extensive recordkeeping, and possible extra taxation.
Speak to Your Accountant
Depending on what form of business you chose will determine which one you should use. In some cases, if you anticipate your income to be very high in the first year there might be an advantage to incorporating or if the nature of business is such that liabilities might occur it might be safer to incorporate. You should discuss this with your accountant in advance.
Registering Your Partnership, Sole Proprietorship or Corporation
In Canada you can register a partnership, sole proprietorship or a corporation in any of the provinces and territories of Canada. Corporations can also be registered with the federal government although there is no such thing as a federal sole proprietorship ot federal partnership but there is such a thing as a federal corporation that you can perform a federal business name search for. Therefore you need to decide whether you incorporate federally or whether you incorporate in your particular province or territory. It is cheaper to incorporate federally usually but it is more difficult to have a federal name accepted. Otherwise, it makes no difference if you carry on business in your province or territory as a federal company or an Ontario company.,
Shareholder Agreements and Partnership Agreements
If you chose to set up a corporation or a partnership you should have an agreement in place to protect you as one of the shareholders or partners as the case may be. A solicitor can assist you with setting up a shareholders agreement or a partnership agreement as the case may be. It will contain provisions for the finances, bringing in new partners or shareholders, provisions for terminating the arrangement, who will be the directors and officers of a company, how much money each will invest, and how shares can be transferred and partners leave. If you are going to incorporate and manage your company properly and specifically if you have a number of individuals forming the company with you, you should contact a lawyer prior to incorporating so that they can ensure that the shareholders agreement is prepared and the articles filed properly. Lawyers can also assist with forms of partnership agreements. If a dispute arises between yourself and the other partners or shareholders you will have no recourse if you do not have an agreement in place. It will cost more money at the onset but will provide for less problems and expense in the long run since law suits can be very costly when arrangements turn sour. Here are some of the questions you might want to cover: Is there a clause to ensure that any shareholder wanting out of the buisness must transfer his shares first to one or all of the other shareholders pro rated so that no new unwanted shareholders enter the business? Should one or more shareholders have more voting rights because they provided more capital? Do you need any employment agreements drafted up for certain key employees? What will the procedure be to transfer your shares to someone else? How does the shareholders agreement or partnership agreement handle a matrimonial situation where a shareholder or partner is obligated to split his assets with a mate upon a divorce? A solicitor will be able to answer these questions?
Choosing a Name
It is important when choosing a name to ensure that you have a name that is different in all respects from any existing registered name in Canada. For federal companies refer to the federal name guidelines since the federal government is more strict with name granting.
You will be required to submit a name search with your incorporating documents. In Alberta, Ontario, New Brunswick, Prince Edward Island and the federal jurisidictions you will be required to submit a NUANS name search report. In all other jurisdictions in Canada you will be required to provide a form of name search as specified in that province or territory.
You might want to consider in advance whether you will be registering a trade-mark for the name in which case you may wish to do some trade-mark searches to ensure the name is not taken. Trade-marks are the highest level of name granting in Canada and it is very difficult to have one granted. The name you chose will need to be very distinct, descriptive and different than any other names registered.
When you are ready to incorporate and after you have decided which jurisdiction you can contact the government in that province or territory online to see what methods of incorporations there are available to you. You will need a certain amount of knowledge of how to complete articles of incorporation. If you do not have this knowledge you will need to hire a lawyer to assist you with the incorporation. There are some clauses that the governments will not bother mentioning to you when you incorporate but a solicitor will know that these clauses should be included in the articles. Some Canadian jurisdictions will allow you to incorporate online or in paper format. Normally you will need to complete forms called articles of incorporation, notice of directors and/or notice of registered office. Each jurisdiction will have a different set of forms and requirements along with different fees.
Organization of Your Company and Setting Up Your Minute Book
The proper organization of your company is mandatory. It is not enough to be provided with a Certificate of Incorporation and a blank minute book. When shopping around for help with incorporating keep in mind that sometimes you will not be told that the minute book will be blank. Ask the question: Will my minute book contain resolutions appointing the directors and officers? Will they be blank forms for me to complete or will you be assisting me with setting up those resolutions? If the answer is no, then you know that you are dealing with someone who is not providing an accurate job. The best manner to incorporate is with the assistance of a solicitor since they are trained to know how to set up a company. You will also be required to set up a by-law which will need to be approved by both the directors and shareholders. The by-law frequently tracks the requirements of the business corporations statute in your province and can show you how to set up your meetings properly, how to make other changes such as changing members of the board and officers and the manner of borrowing money. The general operating by-law is included as part of a proper organization of a company.
Initial Form Filing
Ensure that the Ministry where you incorporated your company does not require an Initial Return to be filed subsequent to incorporation. Some provinces and territories do this at the time of incorporation and others such as Ontario request an Initial Return to be filed within 60 days of incorporation. If you do not make this filing then your company may be dissolved at a later date.
Marketing Your Business
Have you researched whether there is a market for the product or service you wish to provide and what the best manner of marketing your product is. Some products and services market very well online.
Federal Business Number
You will be issued a federal business number by the federal government upon incorporation which will be your base number. This will be mailed to the registered office address on the articles of incorporation.
If you anticipate making over $30,000 in the first year you should apply for a GST number since you will be eligible to pay 5% GST on your gross profits in that case. If you are planning on having employees you will need a Payroll Number and if you are planning on Importing or Exporting you will need a Importing/Exporting Number. You will also need a tax number. Each of these four numbers are extension numbers from the base federal business number.
Be sure not to request any unnecessary numbers since Revenue Canada will enforce your compliance with any tax filings relating to these and the other numbers referred to herein whether it applies to your business or not.
If you go to the Revenue Canada Agency website you will be able to find an application for a Business Number.
Retail Sales Tax Number
The Retail Sales Tax Number is issued by the provincial and territorial governments in Canada. If you are selling products you will be required to have a retail sales tax number and pay sales tax to the government regarding same. You will need to look online at the website for the particular province or territory in whi ch your company is registered and apply for the number.