Registering your business in Ontario is, depending on the structure you choose, an important part of how your business will run, what kind of liability you could incur if there are problems and tax implications too.
Choose a business structure
Which business structure you choose depends a lot on the type of business, if you will be running it by yourself or jointly with others, if there is special licencing required for your type of business and other legal considerations. The following is a list of possible structures, with some pros and cons for each one:
Sole proprietorship — This is the easiest business structure to set up. Basically, a sole proprietorship is a business with a single owner. If you run that business under your own name—Jack Black, for example—you aren’t required to register it in the province of Ontario. If you use your name and modify it in any way, you do need to register it, according to the Business Names Act. So if you were going to call it Jack Black Web Designs, that would need to be registered.
Pros of a sole proprietorship:
- It’s easy to set up;
- It’s easy to change up what you’re doing;
- It makes banking fairly easy, as you can set up a separate account for your business but you don’t need to spend on commercial banking fees;
- You make all the decisions and get all the profits that result from your activities, moving assets around as you see fit;
- You can easily deduct business expenses, as you file your company tax information on your personal income tax return. If you’re using your home to run your business, there are significant ‘business use of home’ deductions that are worth noting.
Cons of a sole proprietorship:
- You incur all the debts of the business personally;
- You can be held personally liable if something goes wrong, like if you make a major error and you are sued by a customer. Claims can be made against your personal assets;
- The name of the business—whether your own name or a variation of it—is not protected legally, so someone else could use the same name (you can apply for a trademark for the name, which would protect it);
- You are taxed as an individual, not a business, so your tax rate is your personal rate. This is fine when you aren’t making a lot of money but can get high as your business grows.
Partnership — A partnership is when two or more people join together to run a business. This business structure is usually managed through a partnership agreement that sets out distinctions, in percentages, of share of revenue, share of expenses and roles and responsibilities.
Pros of a partnership:
- SImilar pros to a sole proprietorship in that the structure is relatively easy to set up, and manage;
- It does spread out the liability and debts, to the extent of the percentage of ownership. Example? If you are in a partnership and are a 25% partner, you would be entitled to 25% of the profits and need to incur 25% of the expenses;
- Simple contracts are required to ensure that each partner knows to what percentage they are involved in the business;
Cons of a partnership:
- You are not protected from liability, and claims can be made that exceed your percentage ownership;
- The company name, though registered, is not protected. As with a sole proprietorship, you can apply for a trademark for the name, which would protect it;
- You are taxed on your personal income tax, to the percentage of your ownership.
Corporation — A corporation is a separate legal entity for you and / or your partners, personally and is owned by shareholders.
Pros of incorporating:
- Personal legal protection from liability and financial losses, within certain limits;
- Tax advantages in that you are paid as an employee of the company and the company is taxed at a more advantageous corporate tax rate;
- The company name is protected in incorporation, preventing others from using the same name;
- The company as a whole gets some credibility from the fact that it is a corporation, at least when it comes to lenders and potential investors;
- The company exists beyond its owners. In other words, owners / shareholders / company officers can come and go, but the company stands independent of that. From the point of view of being able to eventually sell a business, a corporation is easier to do that with than a sole proprietorship / general partnership.
Cons of incorporating:
- It’s a much more complex process that requires the efforts of a lawyer and accountant to complete and on an ongoing basis to ensure accurate financial record keeping, financial statements and tax submission;
- It’s a much more costly process that isn’t often worth it for many small businesses until a certain revenue level is achieved;
- It does not permit you to be flexible with moving money around, borrowing from the company’s assets.
There are other structures such as limited liability partnerships, extra-provincial limited liability partnerships and more. These are legal definitions that a lawyer is best equipped to advise you on, if one of standard structures as shown above don’t apply to your situation.
Choosing a business name
Once you’ve decided on a structure, your business is going to need a name. The art of choosing a name that is easy to remember, makes clear what your business offers and is available as a URL and for social media handles is an important process that takes a little time.
From a legal standpoint, there aren’t many restrictions on what you can call your business in Ontario but here are a few considerations:
- You cannot use words or expressions that are obscene or objectionable, in any language.
- You cannot use language that implies your business is something other than what it is. For example, you cannot have a commercial enterprise that is named in such a way that it sounds like a non-profit. Like what? “The Ontario Society for the Preservation of Consumerism”.
- You cannot use ‘college’, ‘university’, or ‘institute’, unless your business is one of these entities and has the consent of the Ministry of Training, Colleges and Universities.
- You cannot make it sound like your business is connected to the Crown, the Government of Canada, the Province of Ontario or any municipality within same unless you have express permission from that entity.
- Names of people who are not directly connected to the business, unless they or their estate has given permission.
Registering your business name with the province of Ontario
The first step, after you’ve chosen a structure for your business, is to register your business name. Again, all business structures, other than a sole proprietorship operating under the owner’s name, must register their business name. This information becomes part of the public domain and is searchable.
You can do this online at ServiceOntario, or visit a ServiceOntario office in your community. The cost to register or renew a business name is $60, if you do it online ($80 for mail-in or in person registrations and renewals). There are other fees for other searches.
You’ll need to register your business name using the Roman alphabet (English, French, Italian…) If your business name is originally written in another alphabet, you need to translate it for the purposes of registration. The name can contain numbers and other symbols like ! ? X, so long as the symbols aren’t the first character of the name. While you can have signage in other characters, like Chinese or Cyrillic, you must also have signage in English in Ontario.
The registration is valid for 5 years and you won’t be reminded of the expiration date, so keep track as you need to renew before the 5 years is up.
Enhanced Business Name Search — Another service you should leverage, for sole proprietors and general partnerships, is an enhanced business name search. This allows you to check if someone else is already using the name you have chosen in Ontario. If someone is, and the name hasn’t been trademarked or protected by a corporation set up, you can use it too. Obviously, from a marketing perspective, this isn’t ideal. Another good way to check on a business is to buy the URLs for your business name. If someone has already bought them, and are using them, it might be time to pick a new name! If you register online, you will receive a copy of your Master Business Licence via email within two business days. This service is even guaranteed such that if you don’t receive it on time, you can apply for a refund.
Keep your Master Business Licence (MBL) with other important company documents: you may be asked for it if you want to open a bank account in that name or for other government program transactions. When you register your business name, you will also receive a Business Identification Number (BIN). This shouldn’t be confused with the federal Business Number (BN), which will be addressed later in this post.
If you need to change your business address at any time or you want to cancel your business name registration, you need to update your registration with 15 days. Certain changes, however, necessitate getting a whole new MBL:
- Changing the business name
- Changing the partners in a partnership
- Changing the business structure (from sole proprietorship to partnership, for example).
Provincial tax and other registrations
The Harmonized Sales Tax (HST) combines the GST of 5% and the RST of 8%. Getting your GST / HST account set up is related to your federal business number, which is discussed in the next section.
In addition to your business name, you can register your business for:
- Employer Health Tax, where your payroll exceeds $450,000.00 annually;
- Workplace Safety and Insurance Board premiums.
Registering for a federal business number
After registering your business name in Ontario and obtaining your MBL (Master Business LIcence), you can then go on to register for your federal Business Number (BN).
This is a nine digit number that will serve as your business’ identifier for the Canada Revenue Agency (CRA) in all matters related to taxation. The federal government is working to make this number how your business is identified throughout the federal government and its agencies, so having one is essential, whether your a sole proprietorship or a corporation.
You can access the Business Registration Online (BRO) system to get your business number and register for the CRA accounts that your business needs:
- Corporate income tax program account
- GST / HST program account
- Payroll deductions program account
- Import / Export program account
The first and fourth aren’t applicable to every business, but GST / HST and payroll deductions might be. Read on!
Registering for GST / HST
You have to get a GST / HST account if your business meets these two conditions:
- You make taxable sales, leases or other supplies in Canada AND
- You are NOT a small supplier. The definition of a small supplier is: A small supplier refers to a person whose revenue (along with the revenue of all persons associated with that person) from worldwide taxable supplies was equal to or less than $30,000 ($50,000 for public service bodies) in a calendar quarter and over the last four consecutive calendar quarters. (SOURCE)
In other words, if you make less than $30,000 in a year, you don’t need to collect, remit or file returns for GST / HST. That said, there is a certain amount of credibility that is leant to a business that collects GST / HST. If you don’t collect it, customers and suppliers alike know that your income is less than $30K. Depending on what type of business you run, that may not be the image you want to project!
You can collect / remit and file returns for GST / HST even if you have revenues under the limit and many small proprietors and general partnerships can qualify to use the ‘quick method’ calculation, which makes filing easier by not having to track individual transactions and deductions. Instead, it’s a blanket percentage that is remitted of your gross revenue. In Ontario, with Ontario customers, you would collect 13% and remit 8.8%. The amount you are keeping is meant to reflect the the amount of input tax credits (ITCs) you aren’t filing for, that is HST that you want to get back on eligible supplies and purchases.
Whether or not your business would be eligible to use the quick accounting method is clarified online, at the CRA website.
Registering for payroll deduction account
Much of the detail on this is covered in another blog post: The Comprehensive Guide to Hiring Employees Part 1 but basically, when you register for your Business Number, you can register for your Payroll Account. As long as you have a BN, you can register for the payroll account at a later date (after you hire employees) but before your first remittance is due. That first date is the 15th day of the month following the month in which you started holding back deductions from your employee’s pay, including income tax, CPP and EI. There is a Payroll Deductions Online Calculator available, if you’re not sure what you should or should not be deducting.
Setting up your URL and other online presences
Registering your business officially, for the purposes of taxation and other government programming, isn’t hard. The hardest part might be deciding on a name for your business since you also need to consider other ways that your company is ‘registered’.
Even before you register your business name, make sure you can get the URL for your business and even better if you can get relevant extensions. A Canadian business should have the .ca of their URL but it wouldn’t hurt to buy the .com too. You can point that URL to your .ca address, so that whichever one a customer types in, they end up in the right spot.
.com is the general domain extension for ‘commerce’, though it’s very often thought to be limited to US companies. This isn’t the case, however. Here are some other extensions you should be aware of:
.CA – Canada
.US – USA
.NET – Network, though many businesses will also acquire this one if they can, and redirect the address to their main address.
.ORG – Organization – intended originally for non-profit, but many businesses will acquire this one too!
.INFO – Information
.BIZ – Business
In addition to the URLs for your website, check whether you can register your business name for:
- A Facebook Page
- Twitter handle
- Instagram handle
- Other social media platforms that are relevant to your marketing plan.
Registering your business name and getting a federal business number are important, foundational tasks to get your business off the ground. With these under your belt, you can move forward with your business plan and get rolling! As ever, if you are opening your business in or around Innisfil, the Innisfil Economic Development Team is there to help you navigate the twists and turns of business registration and licencing. Drop us a line!