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How to Legally Start Your Own Business

Ready to start your own business? Here's everything you need to know and all the documents you'll need to legally launch your own company and hit the ground running.

Essential documents for starting a business

Find all of the documents you need when starting a business.

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Step 1

Business Plan

A Business Plan is a comprehensive proposal that outlines a business's challenges and opportunities as well as its marketing, financial, and managemen...

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Step 2

Partnership Agreement

A Partnership Agreement establishes the rights and responsibilities of general partners, and the rules in a for-profit partnership.

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Step 3

Purchase of Business Agreement

A Purchase of Business Agreement is a document used when an individual or corporation purchases all the shares or assets of a business.

Last updated November 27, 2023

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Starting a business is an overwhelming and demanding task, but knowledge and flexibility can help you succeed in your chosen field. You need to understand your target market, the different types of business structures, and the steps to registering, financing, and managing a business. This guide will cover steps you can take to start your own business.


Step 1: Research and plan your business

Planning and research are necessary to find and polish a business idea. Market research is an essential step of business planning that can help you understand your potential customers, competitors, and challenges. By analyzing your research findings and considering the strengths and weaknesses of your business, you can compile a plan that lets you strategize for success.

Market research can look like:

  • Defining a target demographic. Figure out who your ideal customers are and potential ways to reach them.
  • Investigating a specific industry. Use tools such as Statistics Canada and Industry Canada. Business magazines and publications can also offer thoroughly researched information about your industry.
  • Analysing trends. Look for patterns in current events, advertisements, and on social media.
  • Consulting experts. Research mentorship opportunities or find experienced advisors. If you’re between the ages of 18 and 39, Futurpreneur Canada offers a mentorship program and financing opportunities.
  • Researching business names. Know what brands currently exist in your industry and write down potential names for your business.
  • Examining potential competitors. By knowing who your competitors are, you can also learn from their mistakes. Find out how you can improve on their business strategies.
  • Seeking out funding opportunities. Research potential opportunities for business loans, funding, and government grants.

Once your research is complete, it’s time to compile and analyze your findings.

SWOT Analysis

A SWOT Analysis gives you an overhead view of your business’s place within the current market. By analyzing your business’s strengths, weaknesses, opportunities, and threats, you can determine how to improve your prospects.

A SWOT analysis is helpful for both new and established businesses. A close look at your business's internal and external aspects can inform your strategies and support you as you decide which direction to go. The SWOT analysis is often a part of a more extensive Business Plan.

Business Plan

A Business Plan is a detailed and organized document that outlines a business’s goals and strategies. While it’s not a legal necessity, a Business Plan can help conceptualize your business idea. It can also support you in securing funding by showing potential investors you’re serious and legitimate.

A Business Plan can help entrepreneurs by:

  1. Offering guidance during the early stages of the business
  2. Showing legitimacy to potential partners, investors, and employees
  3. Consolidating important business information
  4. Functioning as a reference document

A Business Plan should include some or all of the following:

  • Company details, goals, and objectives
  • Industry details
  • Company structure
  • Management structure
  • Advertising strategy and target market
  • Information about and comparisons to competitors
  • Operational details
  • Staffing requirements
  • Financial requirements and business assets

The first one or two pages of the Business Plan are the executive summary. The summary outlines the key elements of your business to offer potential collaborators a brief understanding of your strategy.

If you’ve purchased an existing business, you should still use a Business Plan, as it can help you set new goals as an owner and outline your visions for stakeholders.


Step 2: Choose a business structure

Your chosen business structure is a key component of your business plan. The type of company you create decides how your business functions, how it pays taxes, and how much legal liability you carry as an owner. The structures have unique pros and cons, and it’s important to know their differences so you can decide which best suits your needs.

The three main types of business structures are:

  • Sole proprietorships
  • Partnerships
  • Corporations

Sole proprietorships

Many new businesses start out as sole proprietorships. A sole proprietorship is the simplest form of business structure, where one person owns and runs the business by themselves. If an individual starts a business without registering another type of business entity, they become a sole proprietor by default.

In the eyes of the law, the sole proprietor and the business are one and the same. The sole proprietor pays personal tax on any business income and carries all the liability of the business. If the business is sued or has unpaid debt, creditors can claim the sole proprietor’s personal assets and property.

Partnerships

A partnership is similar to a sole proprietorship, except there are two or more proprietors. These partners can be individuals, trusts, or other businesses.

Since there are no legal procedures for forming a partnership, partners can create one with only a verbal agreement to work together with the goal of making a shared profit. If two or more people start a business without formally deciding on any other business structure, the law will interpret it as a partnership by default.

Each province and territory has its own Partnership Act. Find the act for your local jurisdiction here:

Because a partnership is not a separate legal entity from the partners, the business itself doesn’t pay taxes. Instead, each partner is personally taxed on the profits they earn.

Partners are jointly and severally liable for any debts or obligations incurred on behalf of the partnership. A decision made by one partner on behalf of the business is binding for the other partner(s) as well. If the partnership runs out of money, all of the partners’ personal assets are at risk.

Limited partnerships

A limited partnership is a form of partnership where one general partner has unlimited liability, financed by limited partners. The limited partners are considered passive partners. They contribute capital but can’t be involved in the company’s management, and they also carry less liability compared to the general partner. 

Limited partners are only liable for the amount of capital they contribute to the partnership. The general partner, who is in charge of daily business operations, bears all the risk the same way partners in a general partnership do.

Limited partnerships must be actively created and registered as such. Otherwise, they’ll be treated as a general partnership. 

Limited partnerships work well for investors, especially those interested in wealth management or real estate funds. They’re sometimes used to fund short-term projects that require significant investment, such as oil and gas exploration. The main advantage of this model for the limited partners is that they can’t lose more than they invest.

Limited liability partnerships (LLP)

Limited liability partnerships offer liability protection against the negligence of other partners. An LLP prevents an individual from being sued as a result of their partner’s actions, but partners are still liable for their own actions. As in a general partnership, the partners in an LLP are jointly and severally liable for the contractual obligations of the business.

Limited liability partnerships are designed to help professionals in specific industries, such as medicine, law, and accounting. However, it’s crucial to note that provinces and territories have different legislation surrounding LLPs. Some jurisdictions restrict certain professions from forming one, while others don’t allow them at all. So, it’s important to check your local laws before starting an LLP.

Corporations

A corporation is a business that exists as a separate legal entity apart from its owners. That means a corporation is its own legal person capable of entering contracts and incurring debts in its own right. 

Incorporation protects shareholders by removing their personal liability for the business. The corporation is responsible for any debts, and shareholders only stand to lose as much as they’ve invested in the corporation. When a corporation takes out a loan or commits to an agreement, personal property won’t be used to settle claims unless a shareholder provides a Personal Guarantee

There are many pros to forming a corporation, such as corporate tax rates often being lower than personal tax rates. However, if the corporation makes a profit, the shareholders will be taxed on any dividends paid to them by the corporation. Because the business isn’t tied to specific people, ownership transfer becomes easier, and the business gains a theoretically unlimited lifespan. Incorporating can also offer a company more credibility, increasing access to loans and grants.

Corporations can exist in different forms, depending on their needs and purposes. A corporation can be named or numbered and private or public.

  • A named corporation is registered under a legal corporate name. This name must be unique and available, and owners must prove that no other business has used it by obtaining a Newly Updated Automated Name Search (NUANS) report.
  • A numbered corporation is assigned a business number instead of a corporate name. Registering a numbered corporation is a quicker and easier way to incorporate, and many businesses start as a numbered corporation, choosing to register as a named one later.
  • A private corporation is owned by a small number of shareholders, and the company’s shares are unavailable for public purchase. 
  • A public corporation has shares that can be bought and sold on a stock exchange. These corporations are typically run by a board of directors who are obliged by law to be transparent about operations by disclosing financial information to their public shareholders.

You can incorporate your business provincially or federally. Provincial or territorial incorporation is cheaper and gives the right to use your assigned corporate name in that province or territory. Federal incorporation will let you use the assigned corporate name across all of Canada. 

Find out if you should incorporate your business by considering the work that goes into managing a corporation. Incorporating is no pressing issue, and you can take time to prepare for an eventual incorporation further down the road. Most businesses begin as sole proprietorships or partnerships before eventually incorporating to protect the owners. 

Comparison of the three main business structures

  Sole Proprietorships Partnerships Corporations
Legal status Does not exist as a separate legal entity Does not exist as a separate legal entity Exists as a separate legal entity
Control The sole proprietor has total control Partnership law and the Partnership Agreement (if one is created) determine how the partners divide control The directors have day-to-day control and are accountable to the shareholders
Profits Profits go to the owner Profits are paid to the partners according to partnership law or the Partnership Agreement (if one is created) The company earns the profits, which directors may invest back into the company or distribute as dividends to shareholders
Debts The sole proprietor is fully responsible General partners are fully responsible, individually and collectively The corporation is responsible, and the shareholders have no personal liability
Taxation The sole proprietor pays personal taxes on their income The partners pay personal taxes on their part of the income The corporation pays corporate taxes separately from shareholders’ and director’s personal taxes
Assets The sole proprietor owns any business assets The partners jointly own any business assets according to partnership law or the Partnership Agreement (if one is created) The corporation owns any business assets, and shareholders have no claim to corporate assets

Step 3: Choose a business name

A good business name is imperative for success. You want it to be unique, creative, and recognizable. Most business names will need to be registered with the provincial, territorial, or federal government.

While many sole proprietors do business under their personal names, they can also create a trade name. Partnerships can generally do business under the partners' surnames, but any other business name has to be registered. If a corporation wants to use a trade name other than its legal name, that will need to be registered as well.

A trade name is different from a legal corporate name. Any legal corporate name will contain a legal suffix, such as Ltd., Inc., Corp., or similar. The legal names of numbered corporations will be a string of numbers, while named corporations can create their own legal names. All corporations can create a separate trade name for everyday use. Creating a trade name is a necessary step for most numbered corporations.

A trade name is also known as an operating name. This is the name you do business under, meaning it’s also the name that people will know and recognize your business by. You must register your trade name with your province or territory.

Some things to consider when creating a business name are:

  • Add a distinctive element, such as a location or personal name
  • Think about descriptive industry terms that fit your business
  • Don’t choose a name that’s the same or similar to another business in the same industry or area

To register a trade name or legal corporate name, you should conduct a name search in a federal, provincial, or territorial name database. A Newly Updated Automated Name Search (NUANS) report or a Corporate Name Search will prove your name's uniqueness when you register your business.


Step 4: Fill out business formation documents

Most businesses, specifically partnerships and corporations, will need some kind of formation document or legally binding contract that sets the ground rules for the business. While a sole proprietorship doesn’t need an official formation document, sole proprietors can benefit from using planning documents such as a Business Plan to formalize their business.

Partnership Agreement

A Partnership Agreement is a contract between general partners that describes their responsibilities and the distribution of income and losses. It also details any rules for the partnership concerning withdrawals, meetings, and decision-making processes. 

A partnership agreement isn’t legally necessary. The local partnership law will apply by default if a partnership is formed without an official agreement. However, this legislation might not suit the individual needs of your business, which is why negotiating and signing a mutual partnership agreement is invaluable. Creating a legally binding Partnership Agreement lets partners set their own terms, rights, and responsibilities.

For example, in most Partnership Acts, a partnership without a Partnership Agreement will automatically come to an end if one of the partners decides to leave or retire. If more than one remaining partner wishes to carry on the business, this will be inconvenient. By setting the ground rules for the partnership, a customized agreement can offer guidance on business operations, help prevent legal disputes, and ensure partners’ expectations are met.

Articles of Incorporation

Articles of Incorporation are necessary for the formation and registration of a corporation. The articles describe the purpose and structure of the business and are filed with the federal, provincial, or territorial government as a part of the registration process.

Articles of Incorporation include the following information about the corporation:

  • The corporation’s mission
  • Any business restrictions
  • The number of directors
  • The share structure
  • Any restrictions on share transfers
  • Details concerning business activities

Corporate Bylaws

Corporate Bylaws are internal policies used to govern a corporation. They outline meeting rules, voting rights, and the policies and responsibilities of the corporation’s directors, officers, and shareholders. 

A corporation without its own bylaws will be governed by the provincial/territorial Business Corporations Act or the Canada Business Corporations Act. But you shouldn’t rely on default legal processes for solving disputes. Creating bylaws allows you greater control over your business operations and minimizes the chances of legal disputes.

The Corporate Bylaws will set precedents for the following:

  • Company management structure
  • Notice for directors’ meetings
  • Rules concerning remote meetings
  • Voting percentages

Corporate Supplies Kit

A Corporate Supplies Kit contains most of the documents you’ll need to manage and maintain your corporation. Corporate information will often have to be updated and filed with government agencies on a regular basis, and an organized supplies kit is a great tool to have. By keeping all essential records in one place, you can maintain control of your documents and easily access the information you need at a glance.


Step 5: Register your business

Most businesses must be registered with a federal, provincial, or territorial government. Registration processes can vary depending on jurisdiction, so you should follow the guidelines of the area you’ll be operating in.

Registering sole proprietorships and partnerships

While most partnerships must register with a province or territory, a sole proprietorship doesn’t necessarily need to be registered. Sole proprietors who do business under their personal name and earn less than $30,000 a year don’t have to register their business.

If your business revenue exceeds $30,000 annually, you need a federal business number and an HST/GST account to collect and pay sales taxes. (You’ll also need a payroll account if you wish to hire employees.)

A business number allows you to apply for government business support programs. Businesses registered in British Columbia, Manitoba, Nova Scotia, Ontario, and Saskatchewan will automatically receive their federal business number.

Any sole proprietorships or partnerships operating under a trade name have to register the name. Visit your government’s website for an overview of how their registration process works:

Note: A sole proprietorship or partnership in Newfoundland and Labrador doesn’t need to be registered, as the province doesn’t keep a registry of trade names.

Registering corporations

All corporations need to register with a provincial, territorial, or federal government. After filing all the necessary incorporation documents with the jurisdiction where you’ll be doing business, your company will be added to the corporate registry.

Follow these steps to register your corporation:

  1. Create or obtain Articles of Incorporation.
  2. Apply for a federal business number.
  3. Register for a corporation income tax account.
  4. Register for other federal tax accounts if applicable. You can often register for these at the same time as your business number.
    1. Payroll account if you wish to hire employees.
    2. HST/GST account if your business earns more than $30,000 annually.
    3. Import/export account if you import or export goods.
  5. Register as an extra-provincial or extra-territorial corporation for every other province and territory where you’ll be doing business.

Incorporating in some provinces and territories automatically registers you for a business number. If you incorporate in one of the following jurisdictions, you’ll need to register for a business number manually:

  • Newfoundland and Labrador
  • Northwest Territories
  • Nunavut
  • Quebec
  • Yukon

Incorporation processes differ across Canada, and the necessary steps you need to take could depend on where you’re looking to incorporate. LawDepot can help you file for incorporation federally or in the following provinces:

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Step 6: Apply for business permits and licences

Depending on what jurisdiction and industry you’re doing business in, you might need specific permits or licenses before beginning your operations. These permits and licenses can be federal, provincial/territorial, or municipal. 

You can find many necessary permits through the Canadian BizPal portal, but not all provinces, territories, and municipalities are included. Always confirm with your local authorities what business licenses and permits you need before beginning operations.

Any business with employees should also register with the Workers’ Compensation Board (WCB) in the provinces or territories where they conduct business. Registering with WCB is mandatory if you’re operating a business in the construction industry in Ontario, even if you have no employees.


Step 7: Get business support and financing

Capital is a critical part of starting and operating a business. Financial support, such as loans, grants, and government subsidies, can help you maintain and grow your ventures. Some resources to begin your search for business support and financing include:

To qualify for a business loan, you should create a detailed and convincing application to persuade investors and lenders. Your Business Plan will be a vital part of the application. You can also include supporting documents such as market studies, client testimonials, and media coverage of your business. The goal is to show potential lenders that you’re trustworthy, reliable, and capable of repaying the loan in the future.


Step 8: Manage your business

After establishing your business and beginning daily operations, you should adjust how you manage your business. Consider investing in tools that can help you maintain and grow your company, such as a custom website, promotional materials, and accounting software

You should return to your Business Plan and SWOT analysis as your business grows and changes. Examine what has gone well and what you have yet to complete. With all the experience you gain, you can re-evaluate your achievements, goals, and challenges. 

Expand your venture by hiring employees, exploring new avenues of products or services, or branching out into other geographical areas. Set new business goals, seek out new opportunities, and build a foundation for the future to continue aiming for success. 

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