In part one of our series on starting a small business, we discussed the importance of creating a business plan and registering a business name. In part two of our series, we will look at choosing the best structure for your business, as well as permit and licencing considerations.
Choosing a Business Model
When starting a new business, it will be important early on in the process to decide on which business model to use for your company. Most businesses in Ontario operate as one of the following:
- Sole proprietorship
There are benefits to each option, and selecting the best one will depend on a number of factors.
A sole proprietorship is a business that is owned and operated by a single person. It is perhaps the most common model for a new small business, given that it is relatively simple to establish and involves little in the way of formal requirements or red tape. However, those who operate a sole proprietorship can also be held personally liable for any debts of the business, including money owing to vendors, damages awarded in a lawsuit, and business taxes. On the positive side, the owner is singularly entitled to make all of the business decisions and benefit from all of the profits.
A partnership is formed when two or more individuals or other entities join together to carry on a business. Partnerships between individuals are similar to a sole proprietorship in that there are few formal requirements to begin one. While a partnership agreement can be verbal, it is highly recommended that partners enter into a detailed and carefully considered Partnership Agreement which sets out the liabilities, obligations and rights of each partner. For example, if one partner provides more of the start-up capital than the other, that person may want an equal entitlement to the profits of the business.
Corporations are different from other business models in many ways, but perhaps most importantly, creating a corporation means creating a separate legal entity. While sole proprietorships and partnerships generally mean that the owners and operators can be held personally liable, the owners of a corporation are protected from personal liability for the company’s debts unless they provide a personal guarantee.
Incorporation of a business is more costly and time-consuming than any other type of business. A corporation will be required to file Articles of Incorporation with the local, provincial and federal government, and shareholders will enter into a Shareholders Agreement, setting out their rights and obligations. There are also additional requirements, such as the obligation to make annual business filings, hold shareholder meetings, and more.
If you are unsure of how to structure your new business, an experienced business lawyer will consider the needs of the business, the people involved, and provide advice on the best path forward.
Business Permits and Licences
When starting a new business, there may be considerations regarding special permits and licences, depending on the industry, and where the business will be run. Those looking to open a cannabis retail store, for example, will be required to obtain specific licences in order to operate legally in Ontario. Depending on the type of business, there may be permits and licences needed for importing and exporting, operations, zoning or construction permits, music licencing, and more. A good starting place to get a sense of the types of permits and licences you may be required to obtain for your business is BizPal, an online service in collaboration with the federal, provincial and municipal levels of government in Canada. It can provide an at-a-glance overview of what you will need, and links to various government sites where you can find more information. Of course, seeking the advice of an astute business lawyer will ensure you have an accurate picture of your business’s legal obligations, ensuring you start things off fully in compliance with local and federal laws.
In our next installment, we will discuss the basics of financial, banking and tax information for new businesses.
The skilled business lawyers at GLG LLP in Toronto regularly assist corporate clients with a variety of issues, including the configuration and structure of a new or evolving venture in a way that is most beneficial to those involved. Further, we advise and represent corporate clients on related matters including commercial real estate ventures and litigation if necessary. Call 416-272-7557 or complete the online form to arrange a consultation with one of our lawyers today.