Deciding whether to start a new business is a weighty decision many contemplate every year.
Though the prospect of producing a business plan, networking, marketing, finding the right employees, and saving the initial capital can be daunting, certain preliminary legal aspects of starting a business can change the nature of your venture.
This article will look to simplify some of these critical topics, including:
- finding the appropriate business structure
- how to protect your business name
- the procedures for registering your business in British Columbia
- the basic tax implications of setting up a business, and
- why you should hire a lawyer
Choosing the right business structure for you
The three most common types of business structures in B.C. are Sole Proprietorships, Partnerships, and Corporations; each has its own pros and cons.
- Sole proprietorships
Sole proprietorships are relatively inexpensive to set up, and most of the time, they don’t require many legal formalities. As a sole proprietor, you will be classified as fully self-employed, meaning all benefits from the business (such as income and assets) will accrue exclusively to you. However, this also means that all obligations (including business loss and contractual liability) will be your responsibility.
When two or more persons (individuals or corporations) do business intending to profit, their relationships may be classified as a partnership. More specifically, in a general partnership, you and at least one other person will share the management of the business, each partner being personally liable for all debts and obligations incurred. Partnerships in BC, including general partnerships, are governed by the BC Partnership Act.
The advantages of a general partnership usually include how easy they are to form, the low start-up costs, limited regulation, the broader base for management of the entity, and the possibility of obtaining tax advantages.
The disadvantages usually include the fact that there is unlimited liability for the partners, that raising additional capital is not as easy as compared to a corporation, that conflict between the partners may develop, and that there is no name protection.
A corporation is a legal entity separate from the people who own the corporation. A corporation can carry on business, possess rights, own property, and incur liabilities as a separate entity. It is important to note that although shareholders own the corporation via the ownership of their shares, they do not actually own the corporation’s property, nor do they share the same rights and liabilities of the corporation.
In British Columbia, as in other provinces, you can incorporate at the provincial level only or the provincial and federal levels. Provincial incorporation occurs via B.C.’s Business Corporations Act, and federal incorporation occurs through the Canada Business Corporation Act.
Advantages of incorporation:
- include limited liability for the shareholders
- certain tax advantages
- the ability to transfer ownership easily
- better opportunities of raising capital, and
- name protection.
The disadvantages include:
- the higher cost required to set up the entity
- the requirement for extensive record keeping
- more complicated tax issues.
While there can be tax savings, there can be disadvantages as well. Depending on the type of income earned, one could pay more tax using a company. The number of rules, regulations, loopholes, tax credits and tax deductions can make anyone’s head spin and is thus out of the scope of this article. It is advisable to enlist the advice of an accountant to determine if a Corporation’s tax obligations meet your expectations.
Choosing your business name
Having a good name allows a business to develop goodwill with its clients and customers and, eventually, helps them create a brand which can last years and decades. Here are some tips to follow when deciding what name you would like to use.
First, you should make a list (so you have some backup options). Next, searching on the internet for other businesses that may have the same or similar names to the one(s) you want is a clever idea. You will find that, frequently, someone else is using the name you want. However, this shouldn’t be an issue if you have several backup names.
The name of your business should not limit its growth. Consider carefully your reasons for starting your business and how much you aspire to grow it. A name must include a distinguishing element to separate is from other companies in the same business. The name may also need to include a specific corporate or partnership designation, depending on the nature of the business. Finally, make sure not to choose a name that is confusing or hard to spell.
Should you choose to incorporate your business, whether just in B.C. or Canada-wide, you must display the full corporate name at every place of business, as well as on all notices, official publications in B.C., business letters, orders for the delivery of goods, invoices, and statements of account.
A name must include a distinguishing element to separate is from other companies in the same business. The name may also need to include a specific corporate or partnership designation, depending on the nature of the business.
Registering and protecting your business name
In British Columbia, corporations, partnerships, and sole proprietors (if they conduct business using a business name) must register their business name with B.C. Registry Services before starting their operations. The first step involves filling out and submitting the B.C. Government’s ‘Name Approval Request Form.’ This form allows you to put up to three business name choices. This process will reserve the name you have chosen for a period of 56 days, during which you have to either incorporate or submit your declaration form for a sole proprietorship or a partnership.
Registering your business name does not, by itself, give you a proprietary interest in that name. For example, if someone else has registered a trademark in the same name, you may be required to alter or change it, and in some cases can result in a trademark infringement suit being brought against you.
Should you decide to protect your business name via a trademark, it is good to know that trademarking will protect such a name throughout Canada. However, it is also important to note that the prohibition from allowing other businesses to use your name within Canada is limited to using the name on similar products or services. The trademark registration process can take one to two years from the application’s filing date. Also, if your application is denied, there will almost invariably be a further delay.
If, after your considerations, you decide that a corporation is the best business vehicle, you must incorporate your business (either provincially or federally) after submission and approval of the name request. This process involves numerous intricacies, and a lawyer should be consulted for a better understanding, especially if there are unique concerns for your specific business. This process generally involves filing a document called ‘Articles of Incorporation.” This document must set out the company’s name, registered address, and share structure, but can also include other matters related to the company’s structure and internal rules.
Tax considerations for business income can be notoriously complicated, depending primarily on whether you decide to operate as a sole proprietorship, a partnership, or an incorporated business. Therefore, this article will give basic overview of the tax rules for corporations (and not for the other forms of business structure). In addition to the federal corporate tax, all corporations operating in B.C. are required to pay provincial corporate tax on their business income. Most corporations are also required to register for and collect GST and PST.
Also, an Employer Health Tax and WCB premiums may be levied on employers with B.C. remuneration. Your corporate tax returns must be filed with the Canada Revenue Agency (CRA) for each fiscal year your corporation is permanently established in B.C.
The method, and in turn the rates, by which your combined federal and provincial corporate tax will be calculated depend on many factors that are too extensive to consider within this article. However, generally speaking, it depends on whether your company is a Canadian Controlled Private Corporation, whether your income is above or below the small business deduction limit, and whether or not your company is making investment income.
Conclusion – Why Should You Choose a Lawyer
Starting and running a business can be a life-changing decision. These are some of the things a lawyer can do for you:
- explain the legal landscape of incorporation
- assist you in the creation of an overall business strategy that will work for the long run instead of just a few years
- establish and maintain certain legal and procedural aspects
- help you choose the appropriate business structure specific to your goals and life situation
- create a strategy regarding your intellectual property. Specifically, they can help you file your patent application and help you get any trademarks or copyrights (if necessary).
- draft agreements that appropriately meet your specific venture’s needs and that are far superior to the client and supplier contracts templates you may find online
- advise you on what employees to hire, and depending on the type of business, whether to offer them stock options. Counsel can help you draft these contracts and guide you through the stock option process.
These and other more complex concepts are crucial to ensuring your business begins well and remains successful.
Many thanks to you, Danni. You were one of the few people who guided me through some very dark and trying days.
I couldn’t imagine using any other law firm.
Danni, being smart and keeping calm are two key things. The third is, you don’t drop the ball.
Tyler Luchies has been an incredible lawyer for many different situations. Thank you!!!
There is a special place in heaven for you. Thanks for getting me to the finish line.
You all will always be a big part of my life.
She was always available to listen to my questions and concerns and was able to explain and reassure with a caring professionalism.
Jim Legh is funny and makes relief from stressful situations.