You’ve got a great idea for a business and an entrepreneurial itch to get started right away. Not so fast. If you’re looking to start your business, it’s important to know the top legal requirements for starting a small business. You’ll want to arm yourself with information about what it takes to start a legally compliant business.
Without knowing the proper legal requirements, you could be exposing yourself to risk and liability. But we’re here to simplify things and help you get your business up and running.
This resource-filled guide discusses the legal requirements you need to know to start a small business.
Determine the right structure for your business needs
Before you start, you need to determine your business structure. How you set up the business determines how much liability you take on personally, and other crucial factors. It might seem enticing to set up as quickly and simply as possible, but giving some thought to the right structure for your business could have a major impact down the line, especially if the business becomes profitable. It could also help protect you if you encounter financial or legal obstacles down the road.
These are three of the main options when determining the structure of your business:
A sole proprietorship is the simplest and one of the most common structures. As the business proprietor, you are the one and only owner, which gives you a lot of control. With little regulatory paperwork to fill out, you can start doing business right away.
There’s very little separation between you as the business owner and the business entity itself. That structure has both risk and reward. You’re solely entitled to all profits, but also solely responsible for liabilities, debts, losses, and legal issues.
Unlike the other two structures, a corporation is a legal entity that’s separate from its owner. That means assets and liabilities are tied to the business, not to you personally. That protects your personal assets, and lets you draw a salary from the company.
It is, however, a more complex structure, with plenty of paperwork, documentation, and additional responsibilities. Ownr simplifies the process, walking you through the registration, filing, and documentation process. On top of all that we offer ongoing management, a digital minute book, and support with your annual returns.
In a partnership structure, you and one or more people own the business together. Like a sole proprietorship, each of the partners is personally liable for all assets, liabilities, and responsibilities.
However, each partner is also liable for actions taken on by their other partners. In a general partnership – the simplest structure and the default if you don’t set up a formal business entity – those responsibilities are shared equally. But you can also set up limited partnerships in which one partner is more liable than others.
Register your business name
What’s in a name? When it comes to registering your business—a lot. Far from frivolous, the name you choose could have big consequences for your business’s future success.
Before you register or incorporate your business, you need to decide on a name. It will be tied to your business forever (unless you register for a new name, which is its own process) so you want one that’s both unique and memorable.
Incorporated businesses also have the option of being a Numbered Company, which is a number assigned by the government that replaces an original name. It’s not recommended for most active companies.
If you do decide to go with an original name, there are a few things to keep in mind to avoid confusion and legal issues. The name you choose must contain three elements:
- A distinctive element
- A descriptive element
- A legal ending
We like to use the example Rhino Sandwichs Inc. in which Rhino is your distinctive element, Sandwiches is the descriptive element that describes the nature of your business, and Inc. is the legal ending. The legal ending you choose is merely personal preference.
Pick something catchy and memorable, make sure it reflects your product or service, and try to make it distinctive from other companies.
Beware of trademarks
A registered sole proprietorship doesn’t automatically protect a business name, so it’s possible to have the same name as another business without violating trademark protection. However, it’s a risk to assume this is the case. You don’t want to accidentally violate someone else’s trademark, which could be costly in both time and money. Instead, you’ll want to find something unique to you, which will also avoid customer confusion.
Google is your friend. As you brainstorm, search your potential names and domain names online to see if they’re already in use. You can also search for business names on the NUANS database of incorporated businesses and the Canadian trademark database to see if it is protected. With Ownr, you can pre-search unlimited potential names in advance, which saves you the search fees.
Get a federal tax number
You’ll also need a 9-digit Business Number (BN). A BN is required in order to start an account with the Canadian Revenue Agency (CRA), which is essential for how your business is taxed. You may need to file for a new business number if you change the legal ownership or structure of your business, but you’ll also need one to get off the ground. A business number is also essential if your business is federally incorporated or if you register for CRA program accounts.
You’ll also need to decide whether to apply for a GST/HST number. Most businesses with revenues under $30,000 per year are defined as a small supplier and thus don’t need to collect GST/HST, but you’ll have to register if your revenues total $30,000 in one calendar quarter or in four consecutive quarters.
Determine if your business requires permits or licenses to operate
Once you’ve chosen a name and registered, you aren’t off and running just yet. You’ll need to determine if your business requires any specific permits or licenses. Each level of government may require different licenses or permits which can be confusing.
BizPal is an online tool operated by all three levels of the Canadian government that has a free search function that can provide detailed list of what you might need to obtain.
Gain peace of mind with business insurance
Every business assumes some level of risk and liability, regardless of size or industry. Business insurance is an important safeguard to prepare you for potential costs or liabilities. You might think you’re saving some money by skipping it, but should your business be found liable for any number of scenarios, the financial losses could be huge.
Insurance needs are unique to each business and the amount and type of coverage needed vary—from professional liability to business interruption protection. An experienced commercial insurance broker can advise you on the appropriate coverage for your business, as well as the cost.
Is it illegal to operate without business insurance?
It is not illegal to operate without business insurance in Canada. One exception is commercial auto insurance, which would apply if your business has a car or truck. Keep in mind, you may need to work with customers or service providers who require you to have it. And without the risk mitigation that comes with an insurance policy, operating without it could end up being very costly.
Legal requirements for starting a small business FAQs
You don’t have to be a legal expert to start a small business, but you do need to know what is required of you by law. Following the steps above can help protect you and your business from legal liability and the potential cost that comes with it. Ownr can help you navigate the legal requirements of your small business.
Can I start a business without registering it?
In most cases, you will need to register your business before you can start operating. If your business has employees, facilities, or offices in Ontario, for example, you will need to register with the Ontario Business Registry. There is one exception, which is a sole proprietorship operating under your own personal name. If your business is structured this way, you can operate without registering.
It’s important to check the legal requirements in specific industries, and depending on the type of business you operate, you may want to consult a legal professional for advice.
What are the legal obligations of a small business?
To operate a business, you need to register your business name (unless you’re a sole proprietor operating under your own name), avoid violating trademarks, get a federal tax number, pay the proper taxes, and obtain the proper permits and licenses required to operate.