COLOURS OF BUSINESS LAW

Supercharge your STARTUP

BY MONICA BEFFA, FOUNDER OF BEFFA LAW PC

By the end of 2020, 45% of the Canadian workforce will be self-employed individuals, such as independent contractors, freelancers, and on-demand workers. With almost 19 million people working in Canada today, which means the population of Toronto and Montreal combined will be self-employed by the end of the year. Half of those individuals are becoming entrepreneurs to achieve a meaningful work-life balance and only some will open a side business to increase their income.

No matter what the motivation might be, all the business owners are legally required to register their Startups.

Starting a business creates a wonderful feeling, but whether you left a full-time job for this Startup, or you are still working other day jobs, it is important to understand the legal aspects of the business and their practical application.

10 MUST-DO STEPS to start a successful business!

1. Select your business structure

The first requirement to meet as a business owner is to choose the legal structure of your entity. The three most common business structures are sole proprietorship, partnership, and incorporation. There are pros and cons for each type of business. If you will be operating your Startup as a sole proprietorship, you will enjoy the simplicity of setting it up and maintaining it and a basic tax structure. A partnership provides partners with greater control over how the partnership is governed, the profits shared, and a plain structure for financial management. If you choose to incorporate, there are many means to optimize tax planning, such as income splitting, dividend sprinkling, and lifetime capital gains exemption. Business owners generally have some initial idea on what type of business they want to open, but it is advisable to seek professional advice on the right structure for the specific business. Some factors to consider are your special circumstances, the costs involved, corporate complexity, and tax benefits.

2. Select

When you carefully choose your business name, you need to conduct a name search to ensure that the name is not taken by other companies. Once you have decided on the business name and structure, you need to register your business name with the provincial or federal government. Your Startup will be ineligible to operate without the name registration. After you register the name, you will receive a business license and a business number.

3. Obtain licences & Permits

Certain companies require additional licensing to operate. Depending on the nature of your activity, you may need to apply for a business license at the federal, provincial, or municipal level to carry on commercial activity. In Ontario, the provincial government places some name restrictions on businesses and every entrepreneur needs to consider these limitations when naming their Startup. In some cases, you may be required to obtain a specific license or permit to be allowed to operate the chosen commercial activity depending on the industry you work in and your business location. You must inquire at your local municipality if your business requires additional municipal, provincial, or federal licenses or permits.

4. Register your Startup

Startups are required to register with the tax authorities within the federal and provincial governments for the appropriate taxes to be collected, reported, and remitted. The most common registration is for the Goods and Services Tax/ Harmonized Sales Tax (GST/HST) which will allow your business to charge these taxes. If you have employees, you need to register for a payroll account and deduct the income tax from paid wages, Canada Pension Plan, Employment Insurance premiums and submit these deductions to Canada Revenue Agency.

5. Get business insurance

It is also recommended that you purchase business insurance to protect your Startup from other potential risks. Some common business insurance options include general liability insurance, commercial liability insurance, product liability insurance, commercial property insurance, business interruption, and disability insurance.

6. Open bank a account

Whether you are operating through a corporation or sole proprietorship, you should open a business account separating your personal and business finances before you start collecting payments from your customers. You may open an additional tax account to hold the HST you collect from your clients.

7. Find business funding

Funding can be a major challenge when starting your business. Some owners can fund their businesses out of their own pockets, however, most Startups need capital from other sources to get started. You should ponder all your options for instance debt financing, sharing equity, and government grants. Make sure you understand the advantages and disadvantages of each financing option, including your specific legal rights and obligations.

8. Set up your contracts

After your business is formed, you will require business contracts with suppliers, distributors, and service providers. In the event you are selling goods or services, you will need a service agreement, supply agreement, distributor agreement, sales agreement, and licensing agreement. Entrepreneurs selling goods and services without a written agreement should know that they are forming an oral contract with no written terms. In this case, it will then be left up to the judge and case law to solve any potential disputes. A written contract will clearly convey the rights and obligations you and your customers have, which is a must in the business realm.

9. Lease your space

If you need commercial space, a real estate agent can help you obtain the prime location for your business. You need a professionally written commercial lease. Landlords routinely present their own standard commercial leases to prospective tenants. But you need to carefully consider and negotiate all the lease’s terms, including your rights and obligations. Many clients come to me after they signed a lease and faced difficulties in amending its terms which were not as favorable as they initially thought.

10. Protect your brand

For some Startups, intellectual property is the main or the only asset. Devoting time, effort, and capital to create an innovative product justifies the investment required to protect it. The lawsuits for the groundbreaking works being copied by competitors are countless. Think about what intellectual property you have created, and how you can safeguard it through trademark, copyright, and patent protection.

BONUS! Consult a professional

To make sure you understand all the legal aspects of a Startup, it is always a good idea to consult professionals for advice. Consider meeting with both a lawyer and an accountant to make sure that your business is legally and financially sound before the grand opening.