Starting a Business? Consider the Law

You’ve been thinking about starting your own business. Many people do not know exactly what is required when starting up a business from a legal standpoint. Although it is very important to keep your attention on the business aspects of your new company, it is imperative to contemplate the law – to avoid potential pitfalls, but more importantly, to take advantage of the fantastic opportunities that abound for small businesses in Canada. In this article, I will walk you through some of the more important considerations.

1. Pick the right name. Be sure that you pick a unique name to avoid getting sued over trade name infringement.

2. Choose your corporate structure. Is it to your advantage to incorporate? Doing so may limit your personal liability to future creditors, and may end up in valuable tax savings to you and your family. However, you may be better off running as a partnership or sole proprietor until you start generating more significant profits.

3. Protect your assets. Do you need to register your trademark(s)? Do you need to protect your invention through a patent?

4. Get your documentation in order. Will you have more than one shareholder or partner? You may need a Shareholders’ or Partnership Agreement. Get a minute book prepared. Negotiate and get in writing necessary contracts with franchisees, suppliers, etc. along with lease agreements for your business premises and/or equipment. Apply for a business number with Revenue Canada if you will be charging GST (companies that make over $30,000 profit). Consider Income Tax Payroll Deductions.

5. Consider your employees. Will you be an employee? There are distinct tax advantages to paying yourself and family members as employees. Make decisions on employee benefits, including pensions, group insurance, profit sharing, etc. Develop a method for evaluating your employees’ performance. Give some thought to the practices and methods you will use to hire and fire.

6. Protect yourself from liability. Incorporating helps to shelter you from creditor liability. However, have you insured your business against major risks it faces for partners, directors, management and employees? Consider life insurance, disability insurance, critical illness insurance, partnership insurance, key person insurance, vehicle insurance, product or service liability insurance, and business premises and contents insurance.

7. Become aware of tax advantages. Educate yourself on how the Canada Revenue Agency treats corporations, partnerships, and sole proprietors. Find out the difference between employees and contractors. Find out how to structure your business to save the most taxes possible. Find out the tax implications if you decide to sell your business. Further, develop a relationship with an accountant.

Lawyers proficient at business law can assist you with all of the above items. Consider seeking out legal and accounting advice before you incorporate, or if you have already started your business, find out if you have all of your legal bases covered.

In future columns, we will consider some of the above items in more detail. Next month we will consider when you would incorporate your farm or ranch, and what specific things you should consider.