Plan for success.
A business plan will help you think through a number of important aspects of your new business. When you create your plan you will identify customers and the market potential, outline how you will promote your new business, identify startup costs, and create financial projections for your first few years in business. Need more help - check out our workshop Writing an Effective Business Plan.
Select the form of business that is right for you.
1. Sole Proprietorship
A sole proprietorship is a business owned and operated by one individual. It is not considered to be a legal entity under the law, but rather is an extension of the individual who owns it and therefore does not require any specific legal organisation, except of course, the normal requirements such as licenses or permits. The owner has possession of the business assets and is directly responsible for the debts and other liabilities incurred by the business. Any loans of the proprietorship are identical to personal loans of the individual. The income or loss of a sole proprietorship is combined with the other earnings of an individual for income tax purposes.
2. PartnershipsA partnership is a relationship between persons carrying on a profit-motivated business in common. That is, a defining characteristic of a partnership is that there must be more than one person involved in the business. Any number of individuals operating a business in common can establish a general partnership without any government approval. A general partnership is created by the partners and is routinely registered with the government within 60 days of creation. Registration is relatively easy and primarily involves paying a fee to the government. Determining and documenting the rights and obligations of the partners is much more involved. These rights, responsibilities and obligations are typically detailed in a partnership agreement. It is a good idea to have such an agreement for any partnership. A partnership is a legal entity recognized under the law and as such it has rights and responsibilities in and of itself. A partnership can sign contracts, obtain trade credit and borrow money. Any partner is responsible for all liabilities of the partnership. Creditors often "go after" the wealthier partners first when the partnership does not pay its obligations. When a partnership is small creditors may require a personal guarantee of the partners before granting credit. A partnership does NOT have to file income tax returns or pay income tax. The financial information from the partnership is combined with the personal income of the partners to determine their overall tax liability. Partnerships with more than FIVE partners have to comply with Revenue Canada's reporting requirements.
A corporation is a separate legal entity which exists under the authority granted by either provincial or federal law. A corporation has substantially all of the legal rights of an individual and is responsible for its own debts. It must also file income tax returns and pay taxes on income it derives from its operations. Typically, the owners or shareholders of a corporation are protected from most of the liabilities of the business. However, when a corporation is small, creditors may and almost all banks will require personal guarantees of the principal owners before extending credit. The legal protection afforded the owners of a corporation can far outweigh the additional expense of starting and administering a corporation.Corporations must file annual income tax returns with the Revenue Canada (federal) and the Ministry of Finance (provincial) and possibly other provinces in which it does business.Legal fees for incorporating commonly run from $ 500 to $ 1,000, and government fees, vary depending on provincial ($ 315 in Ontario) or federal ($ 500 ) incorporation."
"In practice, there is no practical protection for the small business person from the banks. There is initial legal protection only when the business operates from a corporation. However, because banks do not want to assume the risks of carrying on the business when the owner assumes the benefits, banks virtually always require a personal guarantee from small businesses. All the assets of the guarantor are available to the bank to settle the original debt, regardless of whether or not the original loan was to a sole proprietor, partnership or corporation.
When to register
If you operated a sole proprietorship under your given name, ie. John Smith, you are not required to register your business.
However, operated under a modified name, such as John Smith and Associates or John Smith Designs, the Business Names Act requires that you register your sole proprietorship.
Partnerships must be registered by filing a declaration with the Companies Branch.
You are responsible for determining whether your business name is already in use, which can be done by doing a name check at the OBC station.
Sole proprietorship and partnership registration do not protect your business name; others can register and use the same name. To protect your business name you need to incorporate your business, and/or apply for a trademark.
Incorporating a business is a complex process. If you plan to incorporate, consult a professional or you can research and go through the process yourself with the assistance of a good guide or book.
While it is more expensive and onerous to incorporate, a corporation may offer tax and legal benefits that make the expense worthwhile. For more information as to which form is good for you, please contact us for details.
Register for provincial taxes, permit, if they apply.
Depending on the type of business you are in, you may need to collect provincial sales tax and apply for a vendor permit or other permits. Service businesses are normally only required to collect the GST, but there are some unusual exceptions. Check our Useful Provincial Tax Links tool for links to key provincial resources that will help you understand what you provincial permits and taxes rates apply.
GST, PST, HST basics.
There are two main taxes that businesses collect: the Goods and Services Tax (GST) and Retail or Provincial Sales Tax (PST). Several provinces combine these two taxes into a single tax known as the Harmonized Sales Tax (HST). Check our Useful Provincial Tax Links tool for informative links for the province where you do business.
A Business Number will be assigned to you when you set-up one of the four following accounts with Canada Customs and Revenue Agency (CCRA):
Also, you may not be required to charge the GST immediately, but there can be advantages to registering immediately. For example, if you purchase $5,000 in goods to start your company, you won't be able to claim back the GST spent on these purchases unless you are registered to collect the GST.
- Goods and Services Tax (GST)
- Corporate Income Tax
- Payroll Deductions
- Import Export
Research and purchase business insurance.
Running a business carries some risks. There are many types of insurance that offer protection. In addition to insuring your property and business assets you may also want to investigate Liability and Loss of Business insurance, which offer specialized protection. Talk to several commercial insurance agents to find out what is available to meet the needs of your business. You may want to shop around, as rates and plans can vary.
Here are some Government websites to educate yourself for the registeration process of a business in Ontario and Canada and related forms to be completed.
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