FAQ Section

• “How important is it to do a Business Plan?”
• “ Do I really need to write a Business Plan on paper?”
• “Will my business idea succeed?”
• “What is a Business Number and do I need one?”
• “There are so many different Business Terms! What do they mean?”
• “When do I have to do payroll deductions?”
• “Am I considered an Employer?”
• “What are my responsibilities as an Employer?”
• “What are the legal issues I should be concerned about when I start my business?”
• “Do I need a lawyer to start a business?”
• “Should I be a sole proprietor or incorporate?”
• “What structure would be best?”
• “How do I know if I am getting a good deal on my lease?”
• “Should I buy an existing business or start up on my own?”
• “What contracts will my business encounter and do I need a lawyer to look over these?”
  
  

“How important is it to do a Business Plan?”
“ Do I really need to write a Business Plan on paper?”

Planning Fundamentals

An experienced pilot does not fly a risky mission without a detailed, well-researched flight plan. Yet people everyday, with minimal business management experience, try to operate businesses without active business plans. "Taking a flyer" on a business venture is no less a life and death hazard for you, your family and your friends, than flying that dangerous mission in a small plane. Make no mistake, when you start a business, your home life, your family life and your marriage are on the line, front and centre.

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“Will my business idea succeed?”

The Odds of Success

Starting your own business is risky.

Of all firms started, just about a third fail within one year, and 80% fail within three to five years. However, after five years, the rate of discontinuation drops rapidly.

Lack of management experience accounts for nearly all of all small business failures. This does not mean that all small business managers have poor management skills. More accurately, it refers to the person's ability to deal with the unexpected occurrences in business.

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“What is a Business Number and do I need one?”

The Business Number (BN)

The BN is a number that replaces the many identification numbers that businesses previously needed to deal with government. A BN is assigned to each business and stays the same, no matter how many accounts a business has. At the Canada Customs and Revenue Agency (CCRA), we use the BN for our four major business accounts:

• corporate income tax
• import/export
• payroll deductions
• goods and services tax/harmonized sales tax (GST/HST)

All new businesses registering for any of these accounts receive a BN. Canadian amateur athletic organizations, charities, and national arts service organizations registered with us also use the BN.

Through a partnership the CCRA has with the province of Ontario the BN is also used for Ontario Business Name registrations and renewals.

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“There are so many different Business Terms! What do they mean?”

Understanding Business Terms

A business name registration refers to a registration under the Business Names Act. It expires after 5 years and must be renewed. The Companies and Personal Property Security Branch, Ontario Ministry of Consumer and Business Services (MCBS) does not send reminder notices. A registry of business names of sole proprietorships, partnerships and corporations is maintained by the Branch. A business name registration should not be confused with an incorporation (see corporation) or a business licence (see business licence).

• A Business Identification Number (BIN) is the number assigned by Companies and Personal Property Security Branch to your Business Name Registration. This is not your federal Business Number (BN) issued by Canada Customs and Revenue Agency (see below).
• When registering your business name through any of the Ontario Business Connects (OBC) workstations or at Companies and Personal Property Security Branch, you will receive a Master Business Licence (MBL) following registration, or by mail when registering through the OBC Web site. The Master Business Licence can be used as proof of business name registration at financial institutions and to facilitate any other business-related registration with the Ontario government.
• A Business Number (BN) is a federal numbering system that replaces the multiple numbers businesses require to deal with the government. The business number includes Goods and Services Tax (GST), import/export, payroll deductions and/or corporate income tax.
• A Business Licence is required by particular businesses in order to operate. This is in addition to the Business Name Registration. For example, "Joe's Garage" is required to register its business name with the Companies and Personal Property Security Branch, Ontario MCBS, AND obtain a licence in order to operate as a garage. To determine if your business will be affected by local regulations, licences, municipal business tax or zoning requirements contact the clerk of the city, town, village or rural municipality where your business will be located. These numbers can be found in the Blue Pages of the Telephone Directory under "Municipal Government."
• Sole Proprietorship refers to an unincorporated business with one (sole) owner. The owner must be an individual. It is not a corporation. The business name of a sole proprietorship is registered by filing a Registration Form 1 under the Business Names Act.
• General Partnership refers to an unincorporated business with 2 or more owners. The general partnership may consist of individuals, corporations, or other unincorporated businesses. This is not the same as a limited partnership. The business name of a general partnership is registered by filing a Registration Form 1 under the Business Names Act.
• Limited Partnership refers to a business with at least one general partner and one or more limited partners. General partners have unlimited liability and limited partners have limited liability up to the amount of their investment. A limited partnership is created by filing a Declaration Form 3 under the Limited Partnerships Act.
• A Limited Liability Partnership (LLP) is a partnership, other than a Limited Partnership, that is formed or is continued as a Limited Liability Partnership in Ontario under Section 44.1 of the Partnerships Act.
• An Extra-Provincial Limited Liability Partnership is defined in subsection 1. (1) of the Partnerships Act as a limited liability partnership formed under the laws of another jurisdiction but does not include an extra-provincial limited partnership within the meaning of the Limited Partnership Act. The law under which an EP LLP is formed determines how it is governed and the personal liability of its partners as per subsection 44.4 (4) of the Partnerships Act.
• An Extra-Provincial Limited Liability Company is defined in subsection 2.1 (2) of the Business Names Act as an unincorporated association, other than a partnership, formed under the laws of another jurisdiction that grants to each of its members limited liability with respect to the liabilities of the association. For more information regarding interpretation, it is advised that you consult a lawyer.
• A Corporation is an incorporated entity with its own rights and responsibilities as a distinct person under the law. A corporation is owned by the shareholders and managed by directors chosen by the shareholders. The owners of a corporation are not personally responsible for the debts of the corporation. The corporation is responsible for its debts. A corporation should not be confused with an unincorporated business name registered under the Business Names Act.
• A Business Corporation is a business entity incorporated under the Ontario Business Corporations Act. The purpose of a business corporation is to make a profit for its owners. A business corporation is distinguished by the use of the following legal endings within the corporate name: "Limited", "Limitée", "Incorporated", "Incorporée" or "Corporation" or the corresponding abbreviations "Ltd.", "Ltée", "Inc." or "Corp."
• A Not-For-Profit Corporation is an Ontario corporation incorporated under the Ontario Corporations Act. Not-for-profit corporations, such as social clubs and cultural and sporting organizations, do not operate to make a profit and do not issue any shares. It may have "Incorporated", "Inc.", "Corporation" or "Corp." as a legal ending, but it is not required.
• A Corporation may operate under a name other than its legal corporate name by filing a Registration Form 2 under the Business Names Act. The style name can not have the legal endings of "Limited", "Limitée", "Incorporated", "Incorporée", "Corporation", "Ltd.", "Ltée", "Inc." or "Corp."

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“When do I have to do payroll deductions?”
“Am I considered an Employer?”

Payroll Deductions Requirements

You are generally considered to be an employer if:

• you pay a salary, wages (including advances), bonuses, vacation pay, or tips to your employees
• you provide certain benefits such as board and lodging to your employees.

If you cannot determine whether a person is an employee, you can obtain a ruling from the Trust Accounts Division of Canada Customs and Revenue Agency, or Specific Regulations - Québec.

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“What are my responsibilities as an Employer?”

As an employer, you have to:

• ensure that you have a Business Number which identifies the four major Canada Customs and Revenue Agency business accounts: corporate income tax; import/export; payroll deductions; and the goods and services tax (GST)
• deduct income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums from amounts you pay to your employees
• send in these amounts along with your share of CPP contributions and EI premiums that you have to pay throughout the year on your employees' behalf
• get a social insurance number from each employee
• report all these amounts on an information return by the end of February of the following calendar year.

NOTE: As an employer or payer, you hold payroll deductions in trust for the Receiver General. Therefore, you have to keep these amounts separate from the operating funds of your business. They must not be part of an estate in liquidation, assignment, receivership or bankruptcy.

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“What are the legal issues I should be concerned about when I start my business?”
“Do I need a lawyer to start a business?”

Legal Issues in Starting a Business

The use of professional services is essential to the success of a small business, whether you are buying an existing business or franchise, starting from scratch on your own, or expanding a business you presently operate.

Professionals can provide the knowledge and expertise in the areas that you are limited, and they can round out your management team to ensure your business operates efficiently.

One of the professionals you will want to consult with as an entrepreneur is a lawyer.

Lawyers are highly trained professionals who deal with a full range of personal and business legal matters. Most lawyers tend to specialize in one or more areas of practice.

If your legal concerns are restricted to one specialty area, it may be best for you to deal with a lawyer who specializes directly in that area. Many business transactions have legal implications, so you should try to select a lawyer whom you can treat as a trusted business advisor.

When searching for a lawyer, ask your business associates, friends, and family for references of law firms they have used and received satisfactory services from in the past. You may also visit the Federation of Law Societies of Canada's Web site at: http://www.flsc.ca/en/whatsnew/whatsnew.asp

Before your initial meeting with a lawyer, prepare yourself to be able to explain your particular legal requirements.

You should ask the law firm what services it can provide to you, and at what cost. Hourly fees may vary widely from lawyer to lawyer, depending on the complexity of the issues, the services required, and the degree of experience of the lawyer. Once a lawyer has determined your needs and is familiar with your situation, an estimate of legal costs can usually be provided.

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“Should I be a sole proprietor or incorporate?”
“What structure would be best?”

Selection of a Business Structure

Whether you plan to operate a home-based business or are involved in a large commercial operation, you will need to decide on which type of business structure best suits your needs. Your options will range from sole proprietorships, partnerships, limited or incorporated companies, to co-operatives. A lawyer can help you choose the correct form of business structure, based on factors such as the number of people involved, the type of business, tax issues, liability concerns, and financial requirements of the firm. An accountant should also be consulted regarding the tax implications of the form of business structure chosen.

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“How do I know if I am getting a good deal on my lease?”

Review of Lease

Most businesses initially start out from leased premises rather than incurring the major capital investment of buying or constructing a new building. However, leases still constitute one of your largest expenses, and usually represent a long-term commitment. As such, your signed lease agreement is a very important legal document.

Leases can vary from a simple one-page agreement to a lengthy complex document, depending on the space you are renting (e.g. mall space vs. separate building).

While your realtor can assist you in understanding the costs and basic terms of a lease, it is advisable to have a lawyer explain the legal ramifications before you sign on the dotted line.

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“Should I buy an existing business or start up on my own?”

Buying an Existing Business

When buying an existing business, you may have to decide whether to buy only the assets of the business, or in the case of an incorporated company, the shares of that company. In the case of the latter, you will also be assuming the liabilities of that company. Before completing such a transaction, a lawyer should be utilized to conduct various searches in order to protect your investment (e.g. outstanding liens against the company assets).

With any business purchase, you should have a buy and sell agreement signed by both parties which spells out the demands and obligations of each, as well as the terms of the deal (e.g. non-competition provision).

You should also be checking with your accountant on the different tax implications, if purchasing the assets or shares of an existing corporation.

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“What contracts will my business encounter and do I need a lawyer to look over these?”

Contracts

If you are buying an existing business, you will want to protect yourself from any prior breach of contract or law, and have your lawyer review any contracts still in effect after your buy-in.

There is a number of other legal issues you must ensure the business complies with such as licensing, registrations, consents, notices, environmental concerns, and employee issues.

Other forms of contracts that require the services of a lawyer, which you may encounter, include the preparation of a partnership or shareholder agreement, a lease agreement, employment contract, mortgage, purchase agreement, or possibly a franchise agreement.

Above all, make sure you contact a lawyer before you sign anything!

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