6 Steps to Set Up a New Business
If you’re looking to launch a new business in Ontario, there are six steps you should consider before commencing operations.
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Determine Your Legal Business Structure
Your legal structure will determine, amongst other things, your business’ tax burden, ownership structure, management, liability, and workflow. The three most common structures are as follows:
- Sole Proprietorship: This is the simplest form of business structure. It involves one individual who is responsible for the day-to-day operations and holds full legal responsibility for the business. You report your business income and expenses on your personal income tax return and there is no legal separation between you and your business.
- Partnership: This business structure includes two or more owners who share in an agreed-upon allocation of the business’ profits and risks. Partnerships require a partnership agreement that disperses the liability amongst the partners and allocates the share of the profits. In this case, you, as a partner, remain personally liable in case of lawsuits or for any taxes your business might incur.
- Corporation: A corporation is a separate legal entity from its owners and limits the business owners’ personal liability and overall risk exposure. With this limitation of liability, however, comes more complex tax and legal requirements, but also opportunities to grow and reduce tax liabilities as allowed under Canada’s Income Tax Act.
Before you start, it is best to consult your lawyer and accountant to determine which structure is best suited to your situation.
Before you start, it is best to consult your lawyer and accountant to determine which structure is best suited to your situation.
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Funding Options
After you’ve determined your business structure, you need the funds to get it off the ground.
- Self-Funding: Although you would retain 100% of the risk with self-funding, this option allows you to exercise full control over your business. If you choose to pursue any self-funding options, be mindful of your personal financial commitments and budget.
- Investors: Investors typically offer start-up capital in exchange for an ownership share and active role in the company. When going with venture capital investments, investors will focus on high-growth companies that have a longer investment horizon than traditional financing and invest capital for equity in the company rather than debt.
- Loan: If you do not have enough money to start your business but want to retain full control of your business, you can consider a small business loan. Lenders such as banks will generally require a business plan, a cash flow statement, and financial projections for the next five years. Be sure to assess different bank and credit union options to get the best possible terms for your loan that is just right for you.
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Register Your Business Name
After choosing a business structure, the next step is to see whether you will need to register the name of your business. If you are a sole proprietorship and operate under your own legal name, you are not required to register your business. For any of the other business structure, it is a legal requirement to register your business name based on the province or territory in which your business operates.
Failing to comply and register a name that you are using may result in significant fines.
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Register for a GST/HST Account
Along with getting a federal business number and corporation income tax account from The Canada Revenue Agency (CRA), the CRA also offers a free Liaison Officer service for small business owners to help them understand their business tax obligations.
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Apply for Your License or Permits
Depending on your type of business or industry, you may require certain business permits or licences, for example:
- Environmental Permits
- Health Permits
- Zoning Permits
- Sales Tax Permits
For more information on licenses and permits required for your business, visit BizPaL.
Along with required licenses and permits, it is also wise to obtain sufficient insurance coverage to protect your business. You can obtain an insurance policy that has basic coverage such as fire, theft, and natural disasters, or one that is specific to your business needs.
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Open a Business Bank Account
Unless you are operating as a sole proprietor, you should consider opening a separate business bank account. It may be worth inquiring about which documentation is required beforehand so that you are prepared prior to this step. Other pieces of information that may be required include:
- Articles of Incorporation
- Master Business License
- Certificate of Status
- Business Number
Once you have followed the above steps, we suggest working closely with your legal team to ensure all requirements have been made to officially launch your business.
At Blackburn Lawyers, we make it easy for you to begin your business venture the right way. With our legal services specializing in setting up a new business, buying or selling a business, commercial leasing and contracts, we have all the business law services you need to advise you and your company in a cost-effective manner.
* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.
