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8 Min. Read

What to Know for Legally Starting a Business in Canada

What Legal Requirements Are Needed to Start a Business? 8 Tips for Startups

Having the next big idea is great and it’s an exciting time. You’re finally branching out and are about to launch your business and begin generating profits. But before you get too far in the plans to grow your business as an entrepreneur, there are some important things to know about.

Have you followed all the legal requirements, complied with the relevant financial regulations and ensured you have the right tax information? It’s a lot to consider and there are often many moving parts when it comes to starting a new business. We get it. 

But we know what it’s like, so we put together a complete guide on everything you need to know to legally start a business in Canada. It covers the types of business structures, registering your business name and a few other important bits of information. 

Here’s What We’ll Cover:

Not Sure Where to Start? Here Is Everything You Need to Know

Key Takeaways

Not Sure Where to Start? Here Is Everything You Need to Know

Before you can take your great business idea and reach next-level growth, you need to take care of a few legal requirements and obligations. This way you can focus on your business and not have to worry about running into any hurdles in the future. 

Here is everything that you need to know for legally starting a business in Canada. 

Choosing the Right Business Structure 

Are you going to operate your business by yourself or do you have a partner? Maybe you’ve got big aspirations and you’re looking at starting a corporation. Whatever it is, choosing the right business structure is one of the most important first steps to take. 

It’s going to impact how you report your income and can also dictate certain tax obligations you need to follow. In Canada, there are three main business structures that you can choose from. 

The first, and most simple, is a sole proprietorship. This business structure is the most inexpensive and easiest type to start. It has some great benefits, as well, such as being the only decision maker and easy tax reporting. However, one disadvantage is that there is unlimited personal liability since there’s no legal separation between you and your business. 

The second option is a partnership. This can be a great business structure to choose if you have a friend, or multiple other people, that you want to go into business with. Tax reporting is very simple and easy to do since there aren’t separate corporate tax returns and there’s shared management in the business. 

The third option is to become a corporation. It can have some great advantages depending on the specific type of business you conduct and the activities you take part in. There’s limited liability which means you aren’t personally responsible should the business incur any debts or liabilities. However, starting a corporation is a much more expensive form of business to start and maintain.

Registering the Business’s Name 

After you choose a business structure to operate under, the next step is to register the name of your business. If you’re a sole proprietorship and you operate under your own legal name then you don’t need to register. But, every other type of business will have to register their business name. 

It’s a legal requirement, however, the specific way to register your name will depend on the province or territory your business is located in. 

For example, Ontario businesses register with the Companies Branch of the Ministry of Consumer Business Services. In Nova Scotia, you register with the Nova Scotia Registry of Joint Stock Companies, and in British Columbia, you register with the Corporate Registry. 

Make sure you take a look at your provincial website to get the most accurate information on where to register your business name. 

Registering for the Right Taxes 

Businesses need to register for the goods and services tax (GST) and the harmonized sales tax (HST). If your small business earns less than $30,000 per year you’re not required to register for GST and HST, however doing so can provide some benefits, such as Input Tax Credits. 

But similar to registering your business name, the certain taxes you’re obligated to register for will depend on your location. For example, some provinces also require businesses to register for Provincial Sales Tax (PST), such as British Columbia, Alberta, Saskatchewan and Manitoba. 

In Quebec, you need to register for the Quebec Sales Tax (QST). Make sure you do the proper research for the province or territory you’re located in so you register for the right tax. 

Getting Business Permits and Licenses 

The majority of businesses in Canada aren’t required to get any permits or licenses. That said, certain types of businesses are required to based on their business activities. For example, telecommunications and broadcasting businesses are going to have special permits and licenses to obtain.

Here are a few other types of permits and licenses you might be required to get depending on the type of business you operate:

  • Environmental permits
  • Health permits
  • Zoning permits 
  • Sales tax permits 
  • General business license 
  • DBA license 

Insurance to Protect Your Business 

If you’re just starting your first business, overlooking the importance of business insurance can be easy to do. You have so many other things to focus on and worry about that it might completely slip your mind. 

However, business insurance can be an important part of protecting your operations. Taking out a policy that covers basic things such as fire, theft, or natural disasters can be a good place to start. 

Speak with your insurance company to get a better understanding of what’s included in each policy type to make sure it fits your business needs. This way you can do everything you can to protect yourself and your business should something unfortunate happen down the road. 

Opening a Business Bank Account 

If you operate as a sole proprietorship, you aren’t required to open a separate business bank account since you file business taxes with personal taxes. But if you do end up opening a separate account you will need two forms of ID. One needs to be a photo ID and the other needs to be a government-issued document. 

You might also need to have your master business license and your trade name registration. If you’re a partnership, you will need to have a copy of your partnership agreement, trade name registration and the registered declaration of partnership. 

Check with your bank for the required documentation beforehand so you can make sure you have what you need. 

If you’re a corporation you’re going to need to have a few more pieces of information. These can include: 

  • Articles of Incorporation 
  • Certificate of Existence 
  • Certificate of Status
  • Business number
  • Business license 
  • Notice of assessment for income tax 
  • Two pieces of ID if you’re the signing authority 

Consulting with Professionals 

Starting a business for the first time means it can be easy to overlook certain information, not understand certain requirements or not be aware of other obligations. It can be easy to get caught up in the excitement of launching your business. 

But to make sure you’re complying with legal responsibilities and tax obligations, it can be helpful to speak with a professional. It can be someone you know that has business experience, a lawyer or an accountant, for example. 

They can answer any questions you might have and provide guidance to make sure you’re doing everything properly. 

Key Takeaways 

One of the first decisions you’re going to make when starting a business in Canada is to figure out which structure you’ll operate under. It can be a sole proprietorship, a partnership or a corporation. Each one has its own sets of advantages and disadvantages, so it’s important to choose the one that fits your business needs and the type of business you do. 

From here, you can register your business name if you need to and register for the appropriate taxes. Use the tips outlined in this guide to get started to make sure you’re complying with the right legal requirements needed to start a business in Canada. 

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