Starting a Business

Find out about the various business structures in Canada and how to get a venture started...

These pages provide information about procedures required to start a business in Canada and the types of company structures available. This information is not legal advice. To find a lawyer call the Canadian Bar Association Lawyer Referral Service, Tel: 604 687 3221.

Ways to Set Up a Business

There are a number of ways to set up a business in Canada:

Buying an existing business

  • A greater initial financial investment is usually required
  • It is important that the buyer protects themselves against any liabilities owed by the company
  • Non-competition agreement from the seller may be important
  • May buy the shares of the business or buy the business assets
  • Written purchase agreement essential
  • Assistance of a lawyer is recommended

Buying a franchise

  • Financing and training may be provided by franchisor
  • Usually required to buy goods or services from the franchisor
  • Initial investment includes paying franchisor a licence fee
  • Rules about running the franchise may be very restrictive
  • Franchisor may be more or less flexible about negotiating terms
  • Assistance of a lawyer is recommended

Start a new business

When starting a new business there are a number of legal structures to choose from:

Sole Proprietor:

This is the simplest and cheapest type of business structure to set up. The sole owner makes all decisions, and is personally liable for the debts and obligations of the business, so personal assets may be at risk. Income tax is paid at the personal income tax rate, rather than small business rate.

The sole proprietor can use their own name, or select a different business name. Registering the business name is optional.

In the event of death of the owner, the business is owned by their estate.

Partnership:

A partnership may have two or more partners.  It is important to have a written partnership agreement stating the rights and responsibilities of each partner.

Each partner is responsible for debts and obligations incurred by the other partners and pays income taxes at their own personal income tax rate on their share of the profits.

Assistance of a lawyer is recommended when setting up a partnership.

Limited Liability Partnership:

This is the same as a partnership, except that it restricts the liability of partners for each other's decisions.

Incorporated Company:

This is a separate legal entity from the shareholders who own the company. Shareholders must agree on how many shares the company issues to each of them. It is important to have a written shareholder's agreement.

Some of the main things to take into account are:

  • The company is responsible for its debts; it can own property, and it can sue or be sued
  • Each shareholder's liability for the company's debts is usually limited to the amount the shareholder invested in the company unless they have agreed to guarantee a debt
  • The company's name must include "incorporated", "limited" or "corporation" (or Inc., Ltd., or Corp.)
  • Companies may be incorporated under either Canadian (federal) or provincial law, but incorporating provincially is more common unless the company is going to be operating in other provinces too
  • The company pays its own taxes at corporate tax rate and must file its own tax return
  • Shareholders pay income taxes on dividends or salary received from the company, at the shareholder's tax rate
  • Assistance of a lawyer is strongly recommended

Further Information

  • Federal Industry Canada has information and free guides on starting a business, incorporating a federal company, patents, taxes, and more.
Information provided by Roger A. Dawson Dawson and Associates, Barristers & Solicitors 503 - 1788 West Broadway, Vancouver, BC, Canada, V6J 1Y1 Tel: 604 733 8117, Fax: 604 733 8339, e-mail, Website