Entrepreneurs

Disclaimer: This article on business law in Canada is intended for the purposes of providing information only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

If you are an entrepreneur, then you know that there is a lot to learn. There are so many things that go into running a business, from marketing and sales to finance and operations. It can be overwhelming trying to learn it all!

However, there is one area that you cannot afford to neglect and that is the legal part of your business.

Business Law in Ontario

That’s why we have put together this comprehensive guide on everything an entrepreneur needs to know about business. In this guide, we will discuss the most important topics that every entrepreneur should be familiar with.

Specifically, we will outline:

• The different types of businesses in Ontario
• The importance of contracts and the types that your business may need
• Whether you should incorporate your business, and if you do, what does that mean for your business
• How to find legal advice that you can trust

At Beeksma Law, we are passionate about helping entrepreneurs and small businesses. Not only are we a small business, but we are also incredibly active within the business community.

Shayna Beeksma, founder of Beeksma Law, is active in the business community, including serving on various boards and mentoring other entrepreneurs and helping them grow their businesses.

If you would like to learn more about how  we can help you, please contact us today! We would be more than happy to chat with you about your specific legal needs.

Types of For-Profit Businesses in Ontario

There are five types of businesses in Ontario: a sole proprietorship, a partnership, a joint venture, a limited liability partnership, and a corporation.

A sole proprietorship is a business owned and run by one individual with no distinction from the owner.

Partnerships have 2+ owners who share the profits and liabilities, but are not a unique entity. They also share in the liabilities of the partnership.

Joint ventures are when 2+ people collaborate on a project. They may contribute their capital and/or skills, but have an agreement in place to keep their profits and liabilities separate.

Limited liability partnerships are a combination of a partnership and the tax benefits of a corporation. They are limited to certain professions, such as lawyers and accountants.

Finally, a corporation is a distinct legal entity that is owned by the shareholders. The law treats a corporation the same as a person – it can be a party in a litigation claim, buy and sell property and enter into agreements.

Registering Your Business

We are often asked if you need to register your business name. In Ontario, you need to register your business name if you are doing business as anything besides your legal name.  You can apply for a master business license online – it is a fairly easy process. Master business licences are valid for five years. Once you register yours, be sure to mark the date that it will need to be renewed.

Handshakes are not enough – you need contracts!

As an entrepreneur, you will be entering into a lot of agreements – with suppliers, customers, employees, contractors, and more.

It is important to have these agreements in writing so that there is a clear understanding of the expectations and obligations of each party. It does not matter whether or not you know the person, or even if it is a close relative. 

Your best evidence if something goes wrong is a written contract. You have worked hard to start and grow your business – protect it by getting contracts in place!

Types of Agreements

There are different types of contracts, such as supply agreements, employment contracts, non-disclosure agreements, and more.

You should always seek legal advice before signing any contract. A lawyer can help you understand the terms of the agreement and make sure that it is in your best interests.

We often see online that entrepreneurs ask others for a template contract. We cannot stress how big of a mistake that is! 

A contract is a legally binding agreement; you must tailor it to your specific needs. Often, these templates do not consider your business and may not even be from your jurisdiction. The laws vary from country to country and even from province to province. A one-size-fits-all approach will not work – you need to have a lawyer draft a contract that meets the unique needs of your business.

You may not want to spend money to have contracts properly prepared, but trust us, the cost is significantly less than what you would pay if something goes wrong and you end up dealing with a dispute.

Types of Contracts and Agreements You May Need

The following are contracts that your business may need. It is certainly not an exhaustive list, but it will give you an idea of the types of agreements that are commonly used in business.

Service Contract

A service contract is used when one party will provide some service, whether it is a one-time event or ongoing. It will contain details of the service and how long it will take to provide, as well as payment details.

This contract should also have a termination clause so that either party can end the contract without penalty, especially if the other side is not fulfilling their obligations.

Website Terms of Use Agreement

You likely have or will have a website, and as such, your website needs website terms of use. It sets out what visitors to your website can and cannot do with the information contained therein. For example, a strong agreement will contain copyright protection warnings or sets forth any disclaimers related to the information on the website. It will also contain a privacy policy that outlines the collection and use of any personal information obtained.

Non-Disclosure Agreement (NDA)

In order to do business, you sometimes need to share information. An NDA, also called a confidentiality agreement, protects the confidential information of your business.

Lease

If your business has a physical location, you are likely going to be leasing that space and will have an agreement that outlines your relationship with the landlord.  While your landlord will typically provide you with the lease, you will want to ensure that your lawyer reviews it before you sign.  

Partnership Agreement

If you are in business with someone else, you absolutely need a contract to set out the expectations and obligations of that partnership. There can be many disagreements that arise in the absence of a strong partnership agreement. Ideally, you have one drafted before you start your business, but you can have it written up at any point.

If there is no partnership agreement, the Partnerships Act has default rules that may not be to your benefit. Therefore, it is prudent to put a formal agreement into place that sets out the terms of the partnership clearly.

Incorporating Your Business

There are pros and cons to incorporating your business.

Since a corporation is its own entity (as noted above), one benefit is that it can continue even if the shareholders change or pass away. Additionally, it allows the shareholders to keep their business debts and liabilities separate from their personal ones. Generally speaking, liability is limited to the corporation itself and not to the shareholders, except for what the shareholders have invested into the corporation.  

Additionally, your accountant may recommend that you incorporate so you can take advantage of tax benefits, such as a lower tax rate.

Conversely, there are also some disadvantages to incorporating.

If you will be pulling out all of your dividends and leaving no money in the corporation, then you miss out on corporate tax benefits and may receive a hefty tax bill. Your accountant will also charge higher tax preparation costs.

There is also paperwork – such as your minute book – that must be prepared on a regular basis. You must also file forms with the government when there are certain changes, as well as your annual return.

Do I Need a Lawyer to Incorporate? 

Strictly speaking, no. You could file your Articles of Incorporation and pay only the filing fee.

However, this is one of those situations where you will save money, only to pay more later. Articles of Incorporation can be amended with Articles of Amendment but the cost to prepare those far outweighs preparing it correctly the first time.

It is absolutely to your benefit to speak to a lawyer before incorporating. 

Keeping your Corporate Records Up To Date

As noted, corporations require a minute book that must be kept up to date. Your minute book is a corporate record that documents the proceedings of your directors and shareholders. Consider it a snapshot of your business.

At a minimum, this must be updated on an annual basis to be compliant with the appropriate legislation. Third parties may also ask you to produce your minute book – for example, a lender may request it when you apply for financing.

Business Law in Canada – Finding Legal Advice You Can Trust

It’s been said that advice is like mushrooms – the wrong type can be fatal.  When it comes to business law, you need to be very careful about what advice you follow because it can destroy your business.

At Beeksma Law, we are not only legal professionals with years of experience, but we are also entrepreneurs. We understand the challenges you face and can provide practical, straightforward advice to help you overcome them.

We are skilled advocates and want our clients to have successful thriving businesses. That is why we are so passionate about giving you a strong legal foundation on which to grow your business.

If you have any questions about business law or need assistance with incorporating your business, please contact us. We would be more than happy to help you.