Are you ready for a business number registration? If the answer is “yes,” this post will show you how to register a business and cover the types of business structures in Canada.
However, note that the information provided here is not legal or tax advice. You can learn more about business structures from the Government of Canada.
If you’ve already chosen a business structure, secured a business name, and just need the business number registration, skip to part 3 of this article.
Otherwise, continue reading to get comprehensive information about the entire process of launching a business in Canada.
1. Choose A Business Structure
First, you need to determine the legal type of business structure that’s best for you before getting a business registration number.
Here are the types of business structures in Canada.
- Sole proprietorship
- Partnerships and limited liability partnerships
Each structure has its advantages and disadvantages. Let’s take a look at each.
This is a simple, cost-effective structure where one person owns and operates the business.
With a sole proprietorship business structure, the owner has complete control over decision-making but is also personally liable.
In other words, all debts and obligations are entirely your responsibility. So while you keep all the income to yourself, your property may be on the line if you get into any major legal problems.
For example, creditors can claim personal property to pay off debts.
Advantages of Sole Proprietorship
- Low Cost: Registering as a sole proprietor is generally less expensive than other types of business structures. However, in most provinces, a business number registration or registering with the government as a sole proprietor is optional. Newfoundland and Labrador do require federal registration.
- Flexibility: As the sole owner of your business, you have complete control over decision-making without needing to consult with partners or shareholders. This helps you implement ideas faster.
- Tax Benefits: You can deduct expenses and losses from your income tax return, which may reduce your overall tax liability.
- Profit Retention: All profits earned belong solely to you rather than being shared with others.
Disadvantages of Sole Proprietorship
- Unlimited Liability: As noted earlier, sole proprietors are personally responsible for all debts and obligations incurred by the business.
- Personal Tax Rate: Income earned by the company gets taxed at the same rate as individual income, which may put you in a higher tax bracket.
- Limited Growth Potential: It can be challenging for sole proprietors to raise capital or secure financing because they can’t sell ownership shares in their company.
- Lack of Transferability: Ownership of a sole proprietorship cannot transfer if you decide to sell the business.
Partnership & Limited Liability Partnership
Partnerships are a common business structure in Canada where two or more people agree to share business ownership. There are three main types of partnerships. These are the general, limited, and limited liability.
All partners manage the business and its debts and obligations in a general partnership. That means each partner is personally liable, which can put personal assets at risk if the company runs into trouble.
General partnerships are not required to register with the government in most provinces. But some may require registration depending on the nature of the business. Partnerships must also file an annual information return with the Canada Revenue Agency (CRA).
Limited partnerships differ from general partnerships because they have both general and limited partners. General partners have unlimited liability, which means full responsibility for the debts and obligations of the partnership.
Limited partners have limited liabilityThese people are investors who provide capital to the partnership but do not participate in its management. They receive a share of profits based on their investment but cannot be held liable for more than the initial investment.
Additionally, limited partnerships must register with the government in most provinces, and there may be additional requirements depending on the nature of the business.
If you decide to enter a partnership, you should involve a lawyer to make the partnership agreement.
Limited Liability Partnership (LLP)
A limited liability partnership (LLP) is a type of partnership that provides some protection against personal liability for individual partners. Professional services firms such as law or accounting firms often use LLPs.
However, in an LLP, each partner is still responsible for their actions within the firm. But they are not personally liable for claims arising from another partner’s negligence or misconduct. That means if one partner gets sued, only their assets will be at risk rather than all partners.
In addition, LLPs must be registered with provincial authorities and follow specific regulations related to governance and reporting.
Advantages of Partnership and Limited Liability Partnerships
- Easy to form: Partnerships can be easily formed through a written agreement outlining the terms of the partnership.
- Shared Costs: The startup costs of a partnership are shared equally between partners, reducing the financial burden.
- Shared Profits and Responsibilities: Partners share profits, responsibilities, and obligations equally according to the agreed-upon share percentage.
- Tax Benefits: Partners share deductions and taxes.
Disadvantages of Partnership and Limited Liability Partnerships
- Unlimited Liability: Just like a sole proprietorship, partners may be personally liable for all debts and obligations incurred by the business.
- Joint Liability: Each partner may be responsible for the actions of every other partner in the firm. So if one partner makes a mistake or conducts illegal activities, all partners can be held accountable.
- Personal Tax Rate: Partners get taxed at their personal income tax rate, which may put them in a higher tax bracket.
- Disagreements Among Partners: Disagreements can lead to conflicts that may harm the business.
Corporations are a type of business structure separate from its owners, known as shareholders. They are considered legal entities that can enter into contracts, own property, and conduct business, among other things.
For example, creditors cannot place claims on your personal property. Instead, all claims are limited to business assets, and you’ll not be liable for the company’s debts, obligations, or actions. Nor can the company be responsible for your actions.
Types of Corporations
There are two main types of corporations: federal corporations and provincial.
Federal corporations are under the federal laws of Canada and can operate in any province or territory. However, provincial corporations are incorporated under provincial laws and can only operate within that province.
In addition, corporations can be private or public. Individuals or small groups own private corporations. In contrast, public corporations trade shares on public stock exchanges.
Advantages of Incorporation
- Limited Liability: As noted earlier, shareholders are not liable for business debts or obligations.
- Perpetual Existence: The corporation can continue to exist even after its original shareholders pass or the company sells its shares.
- Access to Capital: Corporations can issue shares to raise capital from investors, which can help fund growth and expansion.
- Tax Benefits: Corporations may be eligible for tax breaks and deductions unavailable to other businesses.
- Professional Image: Incorporating a company can provide a more professional image and increase credibility with customers, suppliers, and lenders.
Disadvantages of Incorporation
- Costs: Incorporating a business can be time-consuming and expensive due to any required legal and government filing fees. However, not all companies need legal assistance, and you can incorporate a business online. Filling taxes are also typically more expensive for this type of business structure.
- Regulations: Corporations are subject to more regulations than other types of business structures, including annual reporting requirements and compliance with corporate law.
- Double Taxation: If the corporation earns profits and pays shareholders, the individuals may get taxed. The corporation also pays taxes for its earnings.
A co-operative is a type of business structure owned and operated by its members. Each share in the profits or benefits generated by the co-operative company. This can include financial returns or non-financial benefits, such as access to goods and services.
In Canada, federal and provincial laws govern co-operatives. Co-operatives can be non-profit or for-profit, and it’s the least common type of business structure.
Types of Co-operatives
There are several types of co-operatives, including:
- Consumer co-operatives: owned by consumers who purchase goods or services.
- Worker-owned cooperatives: owned by employees who work for the cooperative.
- Producer cooperatives: owned by producers who supply raw materials.
- Multi-stakeholder cooperatives: Involves multiple stakeholder groups such as workers, consumers, and suppliers.
Advantages of Co-operatives
- Member Ownership: Members have a direct say in the operations of the co-operative, including voting on key decisions.
- Shared Risk: Members share the risks associated with running the business.
- Access to Capital: You can raise capital through member investments to fund growth and expansion.
- Tax Benefits: You may be eligible for tax breaks and exemptions unavailable to other types of businesses.
Disadvantages of Co-operatives
- Limited Liability Protection: Members may still be personally liable for debts or obligations incurred by the company.
- Democracy Can Be Time-Consuming: The democratic nature of decision-making within co-operatives can lead to lengthy discussions and debates before decisions occur.
- Limited Access To Capital Markets: It may be more difficult for co-operatives to raise capital from external sources, such as banks or investors, compared to other types of businesses.
2. Choose A Business Name
When choosing a business name, selecting a unique and distinctive one is essential. Pick something that sets your business apart from others in the market.
Then search the Canadian Trademarks Database to check if the name you want is available. You should also do a NUANS report to ensure no trademark issues, especially if using the corporation business structure.
If the name you want is unavailable, choose another name and perform the search again.
3. Register Your Business
The process for registering your business name will vary depending on where you are in Canada.
For example, you can register your business name in Ontario with ServiceOntario online or in person at a Centre. But in British Columbia, you must register your business name with BC Registry Services.
A simple Google or Bing search for “register a business online [insert province]” should bring up the pages you need.
Further, registering your business name does not give you automatic trademark protection. You must apply for trademarks separately through the Canadian Intellectual Property Office (CIPO).
Also worth noting is that you only need a business number registration in some provinces. Put another way, having a business name is optional, and you can choose to be a ‘numbered company.’
4. Obtain Necessary Permits and Licenses
Depending on the business, you may need certain permits or licenses to operate legally.
For example, a restaurant may need a food service permit from its local health department. If opening a daycare center, you may need a license from your provincial or territorial government.
The specific permits and licenses you need will depend on the type of business and its location. You can usually find information about the permits and licenses required by contacting your provincial or territorial government offices.
Failing to acquire the necessary permits and licenses could result in fines, legal issues, or even shutting down your company.
5. Register for Tax Accounts
You may need to register for various tax accounts with the Canada Revenue Agency (CRA). However, it depends on your overall business.
Everyone generally needs a GST or HST account if they sell goods or services and cross $30,000 in annual revenue. This lets you collect and remit sales tax on behalf of the government.
Other specific tax accounts you need to register for will depend on the nature of your business, but some common ones include the following:
- Business number (BN) or business number registration: You already know this one. It’s a unique nine-digit number that identifies your business to the government. You must use your BN when interacting with various government agencies, including the CRA.
- Payroll account: If you plan to hire employees, you will need to register for a payroll account with the CRA. This account lets you withhold income taxes, CPP contributions, and EI premiums from your employee’s paychecks and remit them to the government. You typically don’t need this if you work with freelancers or contractors.
You can register for these tax accounts online through the CRA’s website. But you can also register your accounts by mail. For example, you can use Form RC1, Request for a Business Number (BN), if doing a business number registration.
Keep accurate records of income and expenses related to your business. You’ll need this information when it comes time to file your taxes yearly.
Also, there may be penalties if you fail to register for these accounts or file required returns on time.
6. Register for Provincial or Territorial Taxes
You may also need to register for provincial or territorial taxes if applicable.
The specific taxes you need to register for will depend on the province or territory where your business is, but some common ones include the following:
- Provincial sales tax (PST): Some provinces have a PST that applies to the sale of goods and services within the province. You may need to register for a PST account if your business sells taxable goods or services within one of such provinces.
- Quebec sales tax (QST): If your business is in Quebec, you must register for a QST account. That is if you sell taxable goods or services in Quebec.
- Employer health tax (EHT): Some provinces require employers to pay an EHT based on their payroll. If your business has employees in one of these provinces, you may need to register for an EHT account.
You can normally register for these provincial or territorial tax accounts online through the appropriate government agency’s website.
7. Open A Business Bank Account
Opening a dedicated business bank account is essential to separate your finances from business finances.
A separate bank account for your business can help you easily track income and expenses and simplify tax preparation. It may also protect your personal assets if financial challenges arise.
To open a business bank account, you’ll typically need to provide the following documentation:
- Proof of identity: This may include government-issued IDs such as a driver’s license or passport.
- Business registration documents: This may include your articles of incorporation or partnership agreement.
- Business number (BN): If you did a business number registration with the CRA, you’d need to provide this number to the bank.
Ensure you keep accurate records of all transactions related to your business. That will make it easier to reconcile your accounts each month and prepare financial statements when needed.
Choosing between the types of business structures in Canada
Choosing the proper business structure is crucial for entrepreneurs looking to start (or grow) their brand. Each business structure offers unique advantages and disadvantages depending on the business’s and its owner’s specific needs.
For entrepreneurs seeking simplicity and complete control over their business, operating as a sole proprietorship may be the best option. However, people who want to share ownership and responsibility with others may find partnerships or limited liability partnerships more suitable.
Those looking for limited liability protection, access to capital markets, and a professional image may find incorporation aligns better with their goals. On the other hand, entrepreneurs who prioritize member ownership, shared risk, and community focus may find that operating as a co-operative is the best fit.
Ultimately, carefully consider your decision between these types of business structures. Consider all the factors, such as legal requirements, taxation implications, funding needs, personal values, and long-term goals.
Seeking professional advice from lawyers and accountants can also help entrepreneurs make informed decisions that maximize their chances of success.