How to Start a Business

Below are some of the steps on how to start a business and the steps to starting a small business in Canada are as follows:

How to Start a Business – Different Types of Businesses

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 include low start-up costs, easy formation, fewer government filings, being your own boss, low start-up capital in most cases, potential tax advantages, and retaining 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, are 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 succeed, each with their own skill set, lower start-up costs, easy formation, additional capital being brought into the business, and fewer government filings. The disadvantages are that, unless a partnership agreement states otherwise, the partnership ends when one party leaves or dies, and each partner is personally liable for their actions and, as a group, for any expenses, costs, and liabilities arising from lawsuits. Additionally, there may be difficulties in finding suitable partners and 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

The form of business you choose 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 the 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 or federal partnership. However, there is such a thing as a federal corporation, for which you can perform a federal business name search. Therefore, you need to decide whether to incorporate federally or 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 choose 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 finances, including the introduction of new partners or shareholders, provisions for terminating the arrangement, details on who will be the directors and officers of the company, the amount of money each will invest, and the process for transferring shares and partners leaving. 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 you 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 initially, but it will provide fewer problems and expenses in the long run, as lawsuits can be very costly when arrangements go awry. Here are some of the questions you might want to cover: Is there a clause to ensure that any shareholder wanting to exit the business must transfer their shares first to one or all of the other shareholders pro rata, 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 is the procedure for transferring 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? Will a solicitor be able to answer these questions?

Choosing a Name

It is essential when choosing a name to ensure that it is distinct from all existing registered names in Canada. For federal companies, refer to the federal name guidelines, as the federal government is more stringent with name granting.

Name Search

You will be required to submit a name search with your incorporation documents. In Alberta, Ontario, New Brunswick, Prince Edward Island and the federal jurisdictions, 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.

Trademark

You may want to consider in advance whether you will be registering a trademark for the name; in this case, you may wish to conduct some trademark searches to ensure the name is not already taken. Trademarks are the highest level of name protection in Canada, and it is very difficult to obtain one. The name you choose will need to be distinct, descriptive, and different from any other names registered.

Incorporation

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 there be blank forms for me to complete, or will you assist 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 way 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 establish a bylaw, which must be approved by both the directors and shareholders. The by-law frequently tracks the requirements of the Business Corporations Act 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 plan to have employees, you will need a Payroll Number. Additionally, if you intend to import or export, you will require an Import/Export Number. You will also need a tax number. Each of these four numbers is an extension number 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 Canada Revenue Agency (CRA) 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 accordingly. You will need to visit the website for the particular province or territory in which your company is registered and apply for the number.