The Complete “How To Start a Business” Guide
Are you looking for information on how to start a business? Are you overwhelmed by the process of setting up your corporate, tax, legal and insurance obligations? Don’t fear, we’ve got you covered. Here’s a helpful guide on everything you need to do in order to start up your very own business.
1) Choose Your Business Structure
First, you must choose your business structure. You must choose between operating your business as a sole proprietor, a corporation, a partnership, a limited partnership or a joint venture. For more information on selecting a business structure as well as a discussion of the differences, advantages and disadvantages of each type of structure, read our article on Selecting Your Business Structure – Sole Proprietorships, Corporations, Partnerships – Which is Right for You?
2) Organize your Internal Business Structure – Directors, Shareholders and Employees
If you chose to operate as a sole proprietor, you may skip this step.
If you chose to operate as a partnership or corporation however, you must select who will occupy the positions of officer, director and shareholder of the corporation. Then, these must be set out in resolutions that organize your corporation. Consider placing family members as non-voting shareholders of your corporation for income splitting purposes. However, caution! New Tax on Split Income Rules (TOSI) came into effect January 1, 2018 as put forward by the Federal Liberal Government in July of 2017. For more information on the New TOSI Rules, read our article on The New Tax on Split Income (TOSI) Income Splitting Rules for Shareholders of a Corporation.
If you have more than one shareholder, we strongly advise you obtain a Shareholders Agreement to set out the rights, obligations, and duties of each shareholder as well as the rules for an exiting shareholder, a buy-out of shares, or what happens if a shareholder becomes disabled, dies or divorces.
If you choose to operate as a partnership, you will require a partnership agreement. A partnership agreement acts much like a shareholders agreement by setting out the rights and obligations of each partner as well as how the profits of the business are shared.
Finally, consider who your employees are going to be (including yourself). You will require employment agreements for all those who will be fully employed by your business. If you are looking to hire an independent contractor to provide some services, then you may require an independent contractors agreement instead of an employment agreement. For the differences and benefits between these two, see our article on Employees vs. Independent Contractors – What Is the Difference, and What are the Benefits?
3) Get Your Business Funded and Your Bank Accounts Open
All businesses, whether you are operating through a corporation or sole proprietorship, require a separate banking account. Attend your financial institution and bring with you either your Articles of Incorporation or your Master Business License to open a business account at your bank. You may want to consider opening an additional tax account to hold the HST you collect from your customers.
Who will be funding your business? Do you require an initial loan or line of credit from a financial institution lender as commercial financing? Will you be infusing the capital funds yourself? Are you looking for an investor to invest in your business with seed funding in exchange for a share in its ownership?
If you are choosing to fund your business yourself, we strongly advise that you paper a shareholder loan. This is because all of the funds you infuse into your corporation now, you will be able to take out of your corporation once it is profitable completely tax free. The CRA however will want to see evidence of this shareholder loan. As well, a great creditor planning tool is to then register security against the corporation under the Personal Property and Security Act (PPSA), with yourself as first priority secured creditor. This way, if your business is not successful, your initial start up funds can be protected from other creditors.
4) Business Contracts
Now that your business is formed and off the ground, you will likely require business contracts to secure the business you supply. Whether you are in the business of selling goods or services, you will likely need distributor agreements, supply agreements, service agreements, sales agreements, licensing agreements and lease agreements. You may wish to obtain these yourself or contact a lawyer for assistance.
5) Retail or Office Location (including home office)
Consider where you will be operating your business from. If you require retail or commercial office space, a commercial real estate agent can help you obtain the prime location for your business. Next, you will a commercial lease. Most landlords will provide their standard form lease to you. You may want a lawyer to review the terms to advise you of your rights and obligations, and what happens if you are unable to pay your rent.
If you wish to operate out of your home to start, then ensure that you have compiled all of your records to properly establish a home office to enable your home office business deductions. You are entitled to deduct from your business income, the proportional cost of the proportionate space your home office occupies in your home. For more information on how you can record and obtain these deductions, speak with one of our lawyers.
6) Register your Business with the CRA, Ministry of Finance, WSIB
Now that your business is formed, funded and you have a location secured, next we must turn our mind to registering the business for its tax accounts.
On incorporation, the CRA automatically assigns the corporation a Business Number (BN). This will be sent to you in the mail within about 10 days of incorporation. If you are a sole proprietor, you will need to register the business for a BN manually. You can do this by phoning the CRA directly at its business line 1-800-959-5525 or by clicking here.
If you anticipate that your worldwide sales will exceed $30,000 in your first year, you must also register for HST. In order to register for HST, whether you are a sole proprietorship or corporation, you must phone the CRA to open the RT program account. Again, you must call the business line at 1-800-959-5525. Your HST number will be the same as your BN number, however it will end in RT0001.
If your business will have employees (including yourself) you must also register for an RP Payroll account. Again, you can open a payroll account by phoning the CRA business line. The payroll number will be the same as your business number, however it will end in RP0001.
Finally, if your business’s payroll exceeds $450,000 per annum, you must also register for Employer Health Tax (EHT). Unlike a GST account, EHT is administered through our Ontario Provincial government. In order to register for EHT you must phone the Ministry of Finance toll-free at 1-866-ONT-TAXS (668-8297).
Lastly, if you have employees, you must register for WSIB. You may do so online by following this link. You will need your BN to complete the registration.
If you choose to hire a business lawyer, all of the tax and registration processes will be completed by the business law firm.
7) Insurance – Get Yourself Covered
If you’re operating a business at a commercial location, frequently interact with customers physically or operate a ‘high risk’ liability business (such as a coffee shop), you will want to obtain commercial liability insurance. Commercial insurance protects your place of business and everything inside it including all office equipment, furniture, computers and more. It can cover the loss of inventory due to fire; indemnify you against a claim from an injured patron of your business; or cover you for other business losses. If you operate a larger corporation as a director or officer, or you are a director of a non-for-profit corporation or charity, you may want to consider obtaining additional D&O insurance as well.
8) Branding, Advertising and Trade-marks
Next, you may want to consider branding and advertising your start up. Starting a business requires that you stand out in a distinctive way among your competitors. You may want to hire a graphic designer to develop your marks, slogan, colours and overall brand. You will want to register these marks for trade-mark registration to secure your branding across Canada. Once this is established, you will want to create social media pages on Facebook, Linkedin, Youtube, Instagram, and even Snapchat, depending on the type of goods or services you sell and your demographic. Of course, you’ll want a website and landing page. In today’s environment, you may want to consider hiring a media marketing manager to handle your Search Engine Optimization (SEO) to boost your online presence.
9) Taxes, Bookkeeping and Accounting
Lets not forget about taxes. Business start ups require a reliable bookkeeping software system such as Quickbooks, Sage or Business Vision in order to easily maintain the books of your new business. These systems will track accounts receivable, payable, and track your expenses and deductions as well as your HST paid and your Input Tax Credit (ITC’s) your business will be entitled to. You may also want to hire a physical bookkeeping in order to conduct all of the data entry.
If your business is run through a corporation, you will have to hire an accountant to file the corporation’s year end T2 Income Tax Returns. If your operating as a sole proprietorship, you will file the business’s taxes together with your own personal T1 Income Tax Return, by completing a schedule form T2125
10) System Softwares and Payment Processing
Starting a business requires understanding what special software you will need to assist in its operation. If you run a retail business or restaurant, you will require a POS (Point of Sale) system. If you are a service provider, such as say a plumber, you will still require a method in which to accept payment. You will require a payment processor provider. There are many on the market today such as Elavon, Moneris, or Square.
If you are a more advanced provider, you may require industry specific software in which to manage the supply or control of your business. If you are in the business of selling goods and retaining inventory, you will want an advanced software that keeps track of your purchases, sales and inventory levels. If you are a professional practice, you will require industry specific professional/medical software systems that keep track of your clients/patients and their records.
11) Licenses and Permits
Lastly, certain industries require additional licensing in order to operate within the specific practice. You must inquire whether your business requires such additional licenses. For example, if you wish to open a restaurant business, you must register with your local health unit as well as obtain a valid business licence in addition to an alcohol permit from the AGCO if you wish to serve alcoholic beverages. Contact your local municipality for more information on the municipal, provincial or federal licenses you may require.
If you are in a regulated practice such as a chiropractor, accountant, real estate agent etc. you will likely require licenses from your own professional regulatory body which will allow you to operate your own business.
Hire a business lawyer
Opening a business can be exhausting and overwhelming. We can help you fulfill all the legal requirements of starting a business. As comprehensive business lawyers, we guide you through the start-up process and manage all legal aspects of starting a business, from a to z. If you would like more information on how to start a business and our business advisory services, click here, or contact us today.
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.