This article is written by Yash Kapadia. This article serves as a guide on how to register a business in the province of Ontario in Canada.
Table of Contents
Introduction
It is universally known that Ontario is Canada’s richest market and is often called the business hub which comprises a population of 14.5 million i.e. 38.3% of Canada’s total population. Ontario also generates the country’s highest personal income.
Through this article, a brief guide shall be provided on how to start a business in Ontario. However, it is pertinent to keep in mind that there are four types of legal structures for running a business i.e. a sole proprietorship, a partnership, a company, or a cooperative.
Each structure has different and important implications for liability, taxation, and succession. Which kind suits you the best?
Sole proprietorship
An Ontario Sole Proprietorships Registration is governed by Section 14 of Business Names Act (Ontario). It is sometimes also referred to as an Ontario Trade Name. The simplest form of business is a sole proprietorship which is a form of business that is owned and operated by a single entity. Any person can operate as a sole proprietorship under their own name or under another name that has been decided as long as none of the legal designations of other forms of business such as Ltd. or Inc. is added with it. The biggest edge a sole proprietorship has is setting up and administering it as a whole is less complicated and inexpensive. A sole proprietor can declare their business income on their (referred to as “her” collectively) personal income tax form rather than filing a separate tax form as anyone would have to do if he or she chose a corporate form of business ownership. However, on the side of the disadvantage of running a sole proprietorship, personal liability is the biggest disadvantage.
How to register a sole proprietorship or a partnership?
Choose a business name under which you will operate
If one chooses to run their business under their own name then there is no need to register the business name. However, it is to run on a different name then that particular name must be registered with the Central Production and Verification Services Branch of the Ministry of Government and Consumer Services.
It is to be noted that under the Ontario Business Names Act, a fine of up to $2,000 can be levied against an individual if she fails to register or for registering any misleading or false information. Considering that one has chosen their business name for their sole proprietorship that appears and sounds appealing and will further draw the attention of customers or prospective clients, it is important to learn how to choose a business name that will be legally acceptable. There are certain words as well as expressions that are prohibited to be used. For more reference, Service Ontario enlists the required information on which words and/or expressions are prohibited to be a part of the name of a sole proprietorship.
Do research on the chosen name
By registering the business name, there is no guarantee of exclusivity. One would need to register a trademark for the same. The following are different ways in order to conduct a name search:
- ServiceOntario Integrated Business Services Application: This search spans Ontario only and charges between $8 and $26 for a report. The Enhanced Business Name Search feature can also be used to ascertain and lay to rest any doubt if someone has already been using the chosen business name.
- The Government of Canada NUANS corporate name search website. NUANS is a combined search tool of business names and trademarks. A powerful algorithm is put to use by this particular tool in order to bring out a list of names and trademarks similar or identical to the searched name. A NUANS search will lead to a list of companies/ corporations, business names and registered trademarks similar to the name one has searched. The fee for using this approach to research the business name is $13.80 per report.
After the business name has been selected and a name search by using the tools mentioned above, the foundation is set to go through the real business registration procedure to register a sole proprietorship or partnership.
Register the business name
At the outset, in order to register a business, the following information needs to be provided:
- Name and Address from where business is being operated.
- Details about the business activity taking place.
- The sole proprietor’s name and address to serve posts and legal letters.
- A valid email address if the registration has taken place via email.
After the registration, a Master Business License (MBL) is issued which can be used as proof.
There are various options for registering a business in Ontario, some of them are:
- Online registration through ServiceOntario shall cost around $60 for renewal or registration. An MBL will be received via email within a period of two business days after a successful registration. It is to be kept in mind that one can complete other relevant business forms online such as the Retail Sales Tax Vendor Permit (only if required), Employer Health Tax, and Workplace Safety and Insurance Board.
- By using the service of Online Business Registration of the Canada Revenue Agency. In addition, one can further register for other necessary CRA accounts she needs like deduction of payroll or GST registration.
- Lastly, via the public office of the Central Production and Verification Services Branch in person for which forms are available from the branch or at local Land Registry Offices across the province. The fee for registering a business name is $80. The same can also be done online. However, if registration is done in person one can receive their MBL immediately whereas it would take around 20 business days if the same is done online. Lastly, it is mandatory to renew an MBL every five years.
Register for other certifications, licenses, registrations needed to operate legally
A business license may also be a requisite but it only depends on the type of business a person is running. One has to run their business in accordance with and abiding by the provincial and federal laws which means that she may need to register for workers’ compensation insurance or collect GST/HST. The various types of registration a business requires can be accessed here.
Renew your business name after every 5 years
It is extremely important to keep track and remember that a business name registration must be renewed after a period of every five years. The Government of Canada does not send out any sort of reminder notices therefore re-registering is the business owner’s responsibility. Moreover, if a business name or business ownership changes at any given time, one must re-register the business name following which the registration fee should be paid.
Partnership
An Ontario Partnership Registration is governed by Section 15 of the Business Names Act (Ontario) and Partnerships Act. A partnership is a type of business organization involving two or more persons as its owners. Partnerships are governed by state laws and therefore a new partnership is registered with the state where it will be doing business. Each partner in a partnership has a share in the profit and losses (as per agreement) may jointly take decisions.
In a partnership, the partners are taxed and not the business. Therefore, the partners have to pay taxes as per the equity they have in the partnership but through their personal tax returns.
The following are the steps to register a partnership:
Decide on the type and other details of a partnership
There are various types of partners that are part of a partnership firm like a limited liability partnership, a salaried partner, a dormant partner or an equity partner.
In Ontario, the most common types are a general partnership or limited liability partnership. A limited liability partnership must be registered as per the Limited Partnerships Act.
Decide on the name of the partnership
The partners must decide on a name that can be registered as per the type of partnership they shall incorporate after mutual discussions. For example, if it is an LLP then the name must also include “LLP” as per Section 15(1)(i) of the Business Names Act in order to be identified as one.
Registration of partnership with your State
It is necessary for every partnership to be registered by visiting a state’s Secretary of State website and referring to the business or corporations section. This is where one registers their business as a partnership. Most states provide the facility to complete this registration online.
Obtaining an Employer ID
An employer ID number (EIN) can be acquired from the IRS after the business name, type and location are decided. Almost all businesses need an EIN, even if they don’t have employees on the payroll. The process of acquiring an EIN online can be referred to in detail here or by phone and get the number immediately.
Another thing to be aware of is that the IRS would never charge for this. Therefore, an employer must be aware of fake application websites too.
Partnership agreement
A partnership agreement lays down the foundation of the entire business between the partners. The rights, liabilities, regulations, scope of work and various other important clauses are included in it to form a strong foundation on which a business can operate. The Partnerships Act draws down and enlists provisions relating to the nature of partnership (Section 2-4), relation of partners to persons dealing with them under Section 6-19, relation of partners with one another under Section 20-31. In order to draft a well-structured partnership agreement, the service of any lawyer having specialization in contract drafting must be availed of.
Other licenses, registrations required
- For the purpose of sales taxes, if one is in the business of selling taxable products or services then one must register with the State taxing authority.
- Registration is required to pay federal taxes using the EFTPS payment system. This registration is needed to pay employment taxes if one’s partnership has any employees.
- Filing a fictitious name (DBA for “doing business as”) registration with one’s city or county.
- One needs to register with the locality to get relevant business permits and licenses, depending on the partnership’s business activities.
Corporation/company
There are advantages and disadvantages in incorporating a business and one must ascertain whether to incorporate it either locally or federally. Incorporating a corporation in a province will create a legal entity only in the state of Ontario and protect one’s corporation’s right and name only in Ontario. However, federal incorporation would allow a business owner to operate anywhere in the country with a name that is protected throughout Canada.
In order to register a corporation in Ontario one must follow the below steps:
1. Choose a name for your corporation
The approach is similar as it was with sole proprietorship or partnership i.e. refrain from using words that imply the business is connected with the Crown, the Government of Canada, a province or territory, a municipality, or an agency of the Crown, government, or municipality without the written consent of the appropriate authority.
2. A name search
This search is done by a Searcher of Records which provides a confirmation that no one else is running a business or registered trademark with the same or similar name to what one has chosen. A current NUANS report with the incorporation application must be provided. However, this approach can be avoided if a business owner is going to operate a numbered company
3. Articles of Incorporation (AOI) —Form 1 under the Business Corporations Act
To complete the AOI online, anyone the following service providers can be used:
If one wants to use the approach of using paper forms then one can purchase business incorporation forms from attorneys or legal stationery stores or even name search houses.
4. A cover letter
This is used to identify the name of the corporation and people involved, the return address of the corporation, and a contact number for the corporation. If one is registering electronically then the cover letter should be completed online as well.
5. Filing the application
An application must include the completed version of the AOI, the cover letter, a NUANS name search used currently, the NUANS reference number reserved and the NUANS date and the fee.
The application can be filed physically. It can also be filed via mail at the Central Production and Verification Services Branch, or at a Land Registry Office. Both these approaches require a registration fee of $360. The nominal fee is $300 plus the fee charged by the primary service provider if the application is filed electronically.
Other additional documents may be needed but the same depends on what is the opinion of the attorney hired for this process.
Co-operative
A cooperative is a legally incorporated business that is owned and controlled by its Association of Members. A cooperative is able to enter into contracts under its corporate name. The biggest advantage is that the liability for the individual members of a cooperative is limited to the extent of the value of shares held by them in an individual capacity. All legal provisions concerning co-operatives are governed under the Co-operative Corporations Act.
You can only legally structure your business as a cooperative if your business is organized as, and will be operated as, a cooperative according to the Canada Cooperatives Act. The process is similar to that of a corporation as discussed above in order to register a co-operative. In order to be well versed with the literal definition of a co-operative, requirements for incorporation, membership terms and conditions, the structure of the capital required, the composition of the board of directors, specific provision for specific co-operative sectors one can click here.
For registration of Cooperative form of business, the following documents are required:
- A cover letter from the applicant stating all information that is required for filing the application.
- Information whether the cooperative starting in Canada is a nonprofit housing co-operative or a worker co-operative.
- A complete signed and PDF version of the Articles of Incorporation of the Cooperative business (called Form 3001).
- Registered Office of the Business and Information on the first Board of Directors (called Form 3002).
- Nuans Name Search Report– This must be provided to show the relevant authority that necessary steps have been carried out by the company related to the name search and reserving the name thereof. The same should not be more than 90 days old.
- If the name has already been approved by Corporations Canada then the approval letter must be attached.
- The filing fee must be paid as required.
Similar to Corporations, Co-operative can also file applications by email or mail.
Conclusion
The form of business an owner decides to operate in will decide everything i.e. from the administrative costs of setting up and operating the business to the tax planning stage. It is the most important decision that builds the very foundations on which it will work. This should be decided even before a name for the business has been chosen.
However, it is pertinent to remember that the form of business ownership can be changed depending on the circumstances at any given point in time. It is generic that small businesses start out as sole proprietorships and then become corporations at a later date after having made a mark in a particular sector. The easiest way is to pick one of the forms discussed in this article as per your current circumstances and remember to keep evaluating the decision at regular intervals.
It is extremely important to state that one must employ the services of an attorney to do the registrations within a state or at the federal stage. Having an attorney is like keeping a parachute on your back which will prevent business owners from falling on their face. A licensed lawyer will make sure that all agreements, licenses, registrations, requisites are complied with the relevant state/ federal laws and keep the business owner bulletproof from problems that may come back later as concerning issues.
References
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