Starting a Business in Canada

Starting a new business in Canada can vary in degrees of difficulty depending on the industry you choose to pursue, and the province in which your business will reside. Fields such as telecommunications make it nearly impossible for new entrants to grab market share, as mega-corporations such as Bell, Telus, and Rogers, have essentially monopolized the entire industry. In contrast, industries with little to no barriers to entry, such as the restaurant industry, make it very easy for new businesses to enter.
In order to start a business in Canada, you first need to come up with a business idea and then methodically turn it into a structured plan, while ensuring to consider the degree of competition in your respective industry. This is a critical first-step, as the smoothness of your day-to-day operations will rely a great deal on the organizational model you established in your business plan. In Canada, there are four legal forms of business to choose from: sole proprietorship, partnership, corporation, and cooperative.
In sole proprietorship, the business owner is directly responsible for all debts and obligations related to their business. In turn, all profits generated by the business are for their keeping. Some of the advantages of choosing a sole proprietorship form of business are: simplicity and inexpensiveness, direct control of decision-making, and a limited regulatory burden. Disadvantages of sole proprietorship include an unlimited liability for the owner, which can result in creditors going after personal assets if the owner’s business lacks the financial resources to cover their debt obligations. In sole proprietorship, it can also be difficult to raise capital on your own, and depending on how successful your business is, your income will be taxable at a personal rate.
Similar to sole proprietorship is a partnership. This is a good business structure if you want to carry on a business with a partner, and you do not wish to incorporate. In a partnership, you combine all of your resources with your partner’s, and split whatever profits arise according to the terms of your agreement (a formal document usually drawn up by a lawyer). Partnerships are easy to start from a legal standpoint, while starts up costs are split between partners, and there is usually an equal share in the management, profits, and assets of the company. However, both owners in the partnership have an unlimited liability to the company, meaning creditors can go after both of their personal assets in order to pay off any debts that the company may owe. In addition, it may be hard to find a suitable partner to start a business with, and chances of a possible conflict between two partners usually run high regardless of the quality of their relationship. This can be a very negative thing because if one manager makes a bad business decision than both parties are instantly liable for whatever arises afterward.
When choosing a sole proprietorship or partnership, it is important to know the advantages that some provinces may have over others. For instance, the main advantage of starting a business in Alberta, is the fact that their business taxes are relatively low, which makes it much easier for a new business to enter the market and thrive. In British Columbia, the name registration process is a little difficult. They require an advanced name registration, and the name selection process is fairly restrictive - not selecting a unique name can result in extra costs. In Ontario, the main advantage of registering a business is the relatively quick and easy name selection and registration process.
The third legal form of business in Canada is a corporation. Incorporating your business can be done at the provincial or federal level, and once you incorporate your business it is considered a legal entity that is completely separate from the owners and shareholders. This means that the owner is no longer personally liable. Unlike a sole proprietorship or a partnership, incorporating a business in Canada involves a few bureaucratic hurdles. If you want to incorporate your company, you must first complete a NUANS Name Search, send in Articles of Incorporation, an Initial Registered Office Address and First Board of Directors, a Provincial registration form, and finally pay a $200 fee associated with the corporate registration form; the wait time for this is approximately 5 business days.
Registering a corporation has certain advantages and disadvantages in comparison with the previously mentioned legal forms of business. If you incorporate, you automatically have limited liability to your business. In addition, being a corporation makes it much easier to raise the capital needed to get the business off the ground, and the ownership of your business is transferable. However, corporations are more closely regulated, the cost of incorporating your business is dramatically higher, and there is always potential for conflict between shareholders and directors.
Furthermore, if one were deciding to incorporate their company, it may be more beneficial to register your corporation provincially rather than federally. For example, one of the main advantages of registering your company in Alberta is the extremely low business tax they offer (amongst the lowest in Canada). This tax advantage results from low corporate income tax rates, no payroll tax, and no general sales tax, which can definitely make it easier for a smaller budget company to prosper. Whereas the main advantage of registering as a provincial corporation in British Columbia is the fact that they allow non-residents to become directors of companies through the BC Business Corporations Act. In Ontario, the main advantage of registering your corporation is the simple name approval process and timely registration. In comparison, the main advantage of registering a Federal corporation is the increased name protection, and the ability to operate in multiple Canadian jurisdictions upon local registration. Choosing whether you want to incorporate your company provincially or federally strictly depends on what type of business you are. When registering a corporation, an additional consideration is the federal and provincial corporate tax rates. For a Canadian-controlled private corporation claiming to be a small business in Canada, the federal corporate tax rate is 11%, whereas all other corporations are 15% effective January 1, 2012. The provincial corporate tax rate differs from province to province; they can go as high as 16% in Nova Scotia and Prince Edward Island, and as low as 10% in British Columbia. There are two provinces who haven’t implemented corporation tax with the CRA, these are Alberta and Quebec.
The last legal form of business in Canada is a cooperative. This is essentially a business owned by an association of members. These are most appropriate when a group of people decide to pool their resources together to provide access to common needs, such as the delivery or sale of products and/or services. The advantage of a cooperative is that it’s owned and controlled by its members, has limited liability, and there is democratic control. However, the possibility of conflict between members is relatively high, with a longer decision making process, and less incentive for members to invest additional capital.
Since Canada is made up of several provinces and territories with different provincial rules and legislations, the taxation process can slightly differ from province to province. In Canada, there are three types of sales taxes, these are (1) Provincial Sales Taxes (PST), which are levied by provinces. (2) Goods and Services Tax (GST), which is a value-added tax levied by the federal government of Canada. And (3) combined Harmonized Sales Tax (HST), also a value-added tax which is a single, blended combination of PST and GST used in Ontario (13%), New Brunswick (13%), Newfoundland and Labrador (13%), and Nova Scotia (15%). The HST is then collected by the Canada Revenue Agency (CRA), which then forwards the appropriate amounts to the participating provinces. Alberta (5%) is the only province in Canada that hasn’t implemented PST or HST.
Once there is an established structure for the business, the next step is to come up with a business name, and then register that business with an authorized registrar. In Canada, each province has an authorized registration portal where you must register your business. To conduct business in Alberta for example, you must register your business with the Corporate Registry of Alberta. This is a very important step, and it’s better to be proactive and do it earlier in the business process. Registering your business will provide you with necessities such as a Business Number, registered business name, and a Goods and Services Tax (GST)/Harmonized Sales Tax (HST) account. A Business Number is a 9-digit business identifier used in Canada to identify which businesses can register necessary program accounts with the CRA. Registering for a Business Number through the CRA can provide you major program accounts such as a GST/HST account, payroll account, corporate income tax account, or an import/export account.
Since the business is fully registered both provincially and federally, it’s now time to find a suitable location and register for any relevant provincial permits or licences that may be required. For instance, if a sole proprietor were to register a restaurant in Alberta, there are a certain number of licences and permits required before the restaurant could open for business. These may include: Food Service Licence ($146), Food Handling Permit, Class A Liquor Licence ($200), Building Permit ($75), Electrical Permit (fees vary), and a Mechanical Permit (fees vary). Once these are obtained, the city will send a health and safety inspector to examine the restaurant; if it passes the examination then it may open for business.
In comparison to other countries, Canada (currently ranked 13th for doing business according to The World Bank) has very little bureaucratic hurdles necessary to start your own business. We will now compare Canada’s bureaucratic process to that of Mexico and the USA. As previously mentioned, the only step necessary to register a corporation in Canada (where it costs .4% of income per capita) is to file for Federal incorporation and provincial registration through Industry Canada’s online Electronic Filing Centre, which is done at a cost of $200 for a completion time of 5 days.
A few additional procedures are required to register a corporation in Mexico (currently ranked 54th for doing business) and the USA (currently ranked 4th for doing business). In Mexico the cost of starting a new business is 11.4% of income per capita, which is significantly higher than that of Canada and the USA. In order to start a corporation, the first step is to obtain the authorization of using the company name online, and file the draft deed of incorporation with the notary online (MXN 965), sign the deed of incorporation before a notary public (MXN 11,570), register with the Mexican Social Security Institute, register with the local tax administration, notify the local government, and finally register with the National Business Information Registry for a total completion time of up to 7-12 days. Much like Mexico, the USA, which costs 1.4% of income per capita, requires additional steps to incorporate a business as well. These include: reserving the company’s business name ($275), applying for a federal identification number, registering to collect state sales tax, registering as an employer with the Unemployment Insurance Division of the State Department of Labour, arranging for workers’ compensation insurance and disability insurance, arranging for publication, and submitting certification and affidavits of publication ($400) for a total completion time of up to 6 days. It is evident that starting a business in Canada is a very attractive opportunity for future entrepreneurs. Even in comparison with the USA, it is one of the top countries to not only start your company in (Canada is ranked 3rd), but also to let it continue growing.
The most effective way for a new entrepreneur to enter the Canadian market is to do their research and have a plan. Study the provincial and federal Canadian legislation systems so they don’t waste time taking unnecessary steps resulting in additional expenses. Another step that is absolutely paramount to the success of a new business is the development of a business plan. This is a crucial step, as market research allows the potential entrepreneur to evaluate the feasibility of his or her idea. It will also let them know what amount of resources they will actually require to get their business off the floor.
If a potential Canadian entrepreneur wants to, for example, start a restaurant, they should first create an in-depth operational business plan. From there, they can choose their business structure (will it be a corporation or a sole proprietorship), then register the business. Once those steps are complete, they can now start focusing on implementing their business plan. This includes, but is not limited to, obtaining necessary licences and permits, upgrading fixtures, purchasing furnishings and equipment, and carrying out promotional tactics.
Overall, we highly recommend Canada as a potential country to start a new business in. This is largely due to the favourable registration times and procedures that make it easy to establish all legal forms of business. Taking into account the county’s rank as one of the top countries in the world (by the World Bank) to start a business in, Canada is most definitely an attractive destination for any entrepreneur looking to start or expand a business.