Legal Guide Starting a Small Business in Ontario Connect Legal is a registered charity that provides free legal services for small businesses. Registration number: 84434 5264 RR0001 This information is provided for your convenience only and does not constitute legal advice. Connect Legal does not assume responsibility for loss or damage arising from using this guide. MADE POSSIBLE BY
Table of Content Introduction. 3 About Connect Legal 3 About the Toolkit.. 3 Business Structures 4 Rules and Regulations.. 5 Financing Your Business. 6 Opening a Bank Account 7 Income Support for Small Business Owners 7 Understanding Contracts.. 8 Connect Legal Success Story: Sanjay Pandrala 9 Hiring Employees 10 Protecting Your Name and Products. 11 Passing On Your Family Business. 11 Renting vs. Buying Space and Equipment. 12 Case Study The Real Jerk 13 Marketing 14 Connect Legal Workshop and Free Lawyer Matching Program. 15 Appendices... 16 2
About Connect Legal Connect Legal is a registered charity that fosters entrepreneurship in the immigrant community by providing free legal advice and educational services to low-resource small business owners. Our staff and volunteer lawyer network recognize that some small business owners may face challenges due to limited financial resources, language barriers and unfamiliarity with the Canadian legal system. By helping these entrepreneurs to succeed, Connect Legal seeks to contribute to the overall economic prosperity of the community. To find out more about our services and to sign up for our newsletter visit www.connectlegal.ca As a registered charity, we gratefully appreciate financial donations along with the contributions of volunteer lawyers. Find out how you can support our efforts to foster successful small businesses in your community at www.connectlegal.ca About the Toolkit This guide and the appendices are not intended to provide legal advice, but it will provide an overview of some of the legal issues you should be thinking of as a small business owner. An electronic version is available on our website. For legal advice, you will need to consult a lawyer. 3
Business Structures You can set-up your business as a: Sole proprietorship, where you are the business and any profits and losses arising out of the business are personal. As a sole proprietor, your personal wealth is exposed to business liability. Corporation, where the business is legally separate from you and your personal wealth. Any profits or losses arising out of the business belong to the corporation. Partnership, where the business profits and losses are shared between you and one or more owners. Partnerships can be individuals or corporations. Cooperative (co-op), where the members who use the services jointly pool resources and share ownership of the business. Consider: Who will own the business, make decisions and bear risk? Financial and tax benefits with different business structures. Next Steps: Visit ServiceOntario s Business website. Choose a business structure and file necessary paperwork. Register the name of your business and get a Master Business License. Consider (i) a partnership agreement, if a partnership, (ii) articles of incorporation and by-laws for a corporation. 4
Rules & Regulations You will want to research whether any licenses and permits will be needed to run your business. Governments and business partners often require these documents. Some of the benefits of obtaining the necessary licenses and permits are: Major suppliers and customers will then be able and more willing to do business with you. You can avoid fines or being shut down for not having the proper paperwork or permissions. You can get basic guidelines and instructions on how to conduct your business safely. Getting things started on the right track will allow your business to grow. Consider: What is the real cost of running a properly licensed business? Are there restrictions on the sort of businesses you want to start? Next Steps: Visit BizPal.ca to search for applicable permits and licenses. Contact your local city government office to find out the kind of business that is permitted at your location and whether there are any restrictions. Understand the taxes (e.g. sales taxes, employee-related taxes, such as payroll deductions and remittances) you must collect and send to the government and register your business with the Canada Revenue Agency. Visit the CRA s website for small business and self-employed individuals to learn about your tax obligations. 5
Financing Your Business Ways to raise money for your business include: Borrowing money from family and friends. Taking a loan or using credit from a bank or lender. Selling a part of your business to an investor. Making sure that your customers pay on time. Consider: What is the true cost of each type of financing? Credit cards and loans can be very expensive. Check the interest rate: is it fixed or can it be raised? If borrowing money from family and friends, when do you need to pay them back and will you owe interest? Do you have a business plan? Some lenders and investors will require it. If you sell part of your business to an investor, what rights will the investor have in the business? Next Steps: Make sure you know and write down that you are receiving a gift of money, a loan or an investment. Clearly write down any terms or conditions attached to the money. Have a clearly written agreement with lenders or investors (even if they are family) outlining the terms attached to the money. Talk to your bank or local micro-lender to learn how you can become a borrower. Consider attending a financial literacy class. 6
Opening a Bank Account No matter how small your business is, you should consider opening a bank account in order to keep your personal funds separate from your business funds. This is especially the case if you choose to operate your business through a corporation or partnership. In order to open a bank account, the bank will require proof that you have established a business. For example, a bank may require personal identification from you as well as the documents establishing existence of the business. You should consult your local bank to discuss the bank account options offered as well as to find out the documentation required to open an account. Income Support for Small Business Owners If you are currently receiving government income support, you may qualify for small business development program. Self-employed individuals may be able to apply for special EI benefits if they are registered for access to EI. Next Steps: Investigate if you qualify for any of the following: Ontario Works, Ontario Self Employment Benefits Program, or Ontario Disability Support Program. 7
Understanding Contracts A contract: Is an agreement between people or legal entities to do or not to do particular things. Examples include agreements for buying or selling, leases, and services contracts. Is an opportunity to write down what everyone agreed to, so that you can minimize misunderstandings. Can sometimes be overruled by government laws and regulations (such as employment law, human rights law, consumer protection laws etc). Can be a good tool to manage your business risk. Consider: Who is part of the deal? Take a close look at the person or legal entity signing. How and when do you get paid or need to make a payment? Have you included important details such as quantity, quality, timing and effort requirements? What happens if something goes wrong? What rights or obligations do you have? Next Steps: Develop the contracts you will need for your business by looking for examples and talking to a lawyer. Take time to understand contracts before you sign, and do not sign if you do not understand. Negotiate everything! 8
Connect Legal Success Story: Sanjay Pandrala With a B.Sc. in horticultural science from India and work experience in India, Oman and Canada, Sanjay decided that if he truly wanted to get ahead, he should start his own business. With the purchase of a sprayer and the distribution of some flyers, Bugman Pest Control was launched with a $350 start-up capital. Sanjay s perseverance has paid off as Bugman s client base has been continuously growing! Sanjay leveraged Connect Legal s program to develop customised employment and customer contracts that are essential to run his business. Legal advice is vital, says Sanjay. We couldn t have started the business without it. He is a recipient of the Most Promising Immigrant Entrepreneur Award from Connect Legal. 9
Hiring Employees To build a good relationship with your employees while protecting your business, take the time to: Get to know all the laws that protect employee rights, getting legal advice as necessary. Draft a good job description so that both you and your employee can evaluate whether the employee is doing a good job. Use an employment contract that complies with existing laws: o The law states that some employee rights (such as minimum wage) o cannot be changed by the contract; A contract can offer the employer certain protections such as ensuring that the employee does not go to a competitor and that confidential information is not shared with others. Make deductions and file government documents and returns. Make employee decisions based on job performance. Keep detailed records of all employee matters e.g., vacation, sick days, performance evaluations, problems and jobs well done. Consider: What is the true cost of hiring each employee: are you ready to commit to an employee including all wages, training costs, mandatory payroll taxes and remittances and potential severance costs? Next Steps: Visit the Government of Ontario s A Workbook for Employers web page. Visit the Canada Revenue Agency s Hiring an Employee web page. 10
Protecting Your Name and Products To protect your business name and reputation, search online for similar names in use when you register your name with the government. Your name receives limited protection where you do business, but consider paying for a trademark for enhanced cross-canada protection. As your business grows, speak to a lawyer about more ways to protect your business name and products. Next Steps: Ensure your business name is registered with the government. Consider registering a trademark with the Canadian Intellectual Property Office. Passing On Your Family Business Who should inherit your business? Your legal will ensures that your business interests are distributed according to your wishes in a timely and cost-effective manner. If a business has multiple owners, all owners need to plan how the business can survive. Consider: What will happen to your business if something happens to you or your partner? How will your family pay the bills? Next Steps: Seek a lawyer s help to draft or revise your will. There are special requirements in law that must be satisfied for a will to be valid. Make business arrangements in the event something happens to you to ensure your wishes are carried out. 11
Renting vs. Buying Space and Equipment Starting a business may have significant upfront property and equipment costs. When deciding whether to rent or buy think about more flexible and less costly alternatives: Instead of renting a long-term space, consider sharing a desk, renting a stall, using an agent or operating online. When choosing a location, consider your all-in costs, uses permitted and convenience for your customers. For equipment consider quality, customization needed, availability of customer support and the reputation of the seller or lessor. Your space and equipment commitments should be flexible. Consider: Do you have cancellation rights? What are the penalties? Who are your neighbours? Are they a good fit for your business? Are you allowed to operate your business out of your house? What insurance do you need? Next Steps: Figure out what your business can afford and be careful not to over commit. Carefully research the seller, landlord or person renting to you. Review the lease or purchase agreement and negotiate concessions, preferably with advice from a lawyer. 12
Case Study The Real Jerk The Real Jerk was an iconic Jamaican restaurant at the corner of Queen and Broadview that was given only one month s notice to move out after 22 years at the same location. The building was sold and the new Landlord wanted to demolish the building to make way for a new condo development. The Real Jerk issued a statement saying that, We would have hoped to stay longer, long enough for us to secure a new location but [it would] not be feasible. The restaurant was finally reopened at a new location a year and a half later. This is an excellent lesson in understanding your rights as a tenant and ensuring your lease protects your business. 13
Marketing Telling potential customers that you are offering products and services is vital to the growth of your business. However, when you are advertising, you must ensure that you do not violate the Competition Bureau of Canada guidelines. Advertising is generally acceptable if it is not fraudulent, misleading or deceptive. To find customers, consider who your target customers are and what type of advertising they will be most impacted by (Google ads, newspaper ads, radio, etc.). You may also consider building a website to help you advertise your business online. Websites establish credibility and help you to market your business. Consider: Creating appropriate a privacy policy and using customer information accordingly. How to protect customer data from theft. Ways to ensure that you do not spam your customers. Next Steps: Visit the Competition Bureau of Canada s website. Visit the Privacy Guide for Small Business at the website of the Privacy Commissioner of Canada. Review Canada s Anti-Spam Legislation 14
Connect Legal Workshop and Free Lawyer Matching Program Connect Legal offers workshops on legal issues for small businesses in cooperation with Community Partners. These workshops are ideal for new small business owners looking to get a good overview about the legal issues that would apply to their small business. If you would like to become a Community Partner, please contact us. Connect Legal also offers free one-on-one legal advice for eligible low-resource small business owners who are new to Canada. A volunteer lawyer can help you: Review government rules and regulations to help your business successfully operate. Create or review contracts for use when buying or selling products and services. Other legal matters related to the growth of your business. Connect Legal also has many resources and useful links on legal issues for your small business. See our website for eligibility criteria and further details of our programs. Visit us at http://www.connectlegal.ca. 15
Front cover photo: Carolina Velez, Colombia Exotic Courtesy of Jacquie Labatt Back cover photo: Igor Chigrin and Tatiana Zherebkova, Win Global Partners Written, edited, and produced by Connect Legal: Advice for Immigrant Entrepreneurs With funding from Metcalf Foundation Phone: 416-964-3933 Website: http://www.connectlegal.ca E-mail: info@connectlegal.ca 20 Bloor Street East P.O. Box 75005 Toronto, ON M4W 3T3 Registered Charity Number: 84434 5264 RR0001 16
List of Appendices Appendix 1: List to Helpful Resources 18 Appendix 2: Top 10 Ways for Small Business to Avoid Legal Troubles... 19 Appendix 3: Checklist for Creating and Using Contracts... 20 Appendix 4: Sample NUANS Name Search Corporation. 21 Appendix 5: Sample Master Business License... 22 Appendix 6: Sample Articles of Incorporation.. 23 Appendix 7: Sample Business Name Registration... 25 17
Appendix 1: Links to Helpful Resources Below are the current links to all the online sources mentioned throughout the toolkit. For the most updated information please visit Connect Legal s website: http://www.connectlegal.ca/resources-links/ Business Structures Service Ontario: www.ontario.ca/government/services Rules and Regulations BizPal: www.bizpal.ca Canada Revenue Agency: www.cra-arc.gc.ca Opening a Bank Account Royal Bank: https://www.rbcadvicecentre.com/business_advice Scotia Bank: http://www.scotiabank.com/ca/en/0,,3,00.html TD Canada Trust: http://www.tdcanadatrust.com/products-services/smallbusiness/smallbusiness-index.jsp CIBC: https://www.cibc.com/ca/small-business.html Income Support for Small Business Owners Ontario Works: www.mcss.gov.on.ca Ontario Self Employment Benefits Program: www.tcu.gov.on.ca Ontario Disability Support Program: www.mcss.gov.on.ca Hiring Employees Marketing Ontario Government Workbook For Employers : www.labour.gov.on.ca/english/es/tools/esworkbook Canada Revenue Agency Hiring An Employee : www.cra-arc.gc.ca Competition Bureau of Canada: http://www.competitionbureau.gc.ca/eic/site/cbbc.nsf/eng/home Privacy Guide for Small Businesses: www.priv.gc.ca/information/pub/guide_sb_e.asp Canada s Anti-Spam Legislation: www.ic.gc.ca/eic/site/030.nsf/eng/j_00039.html 18
Appendix 2: Top 10 Ways for Small Business to Avoid Legal Troubles 19
Appendix 3: Checklist for Creating and Using Contracts 1. Are the parties to the contract named? 2. Do the signing parties have the authority to enter the contract? 3. Are important terms defined and do you understand them? 4. Does the contract specify important terms such as, timing, quality, payment provisions, and penalties? 5. Does the contract specify what happens if one party doesn t do what they promise (Breach of Contract)? 6. How and when does the contract end? 7. Does the contract specify what happens in the event of a dispute? How will it be resolved? 8. Are all the pages of the contract numbered? 9. Have all parties signed the contract? 10. Do you understand all the terms of the contract? *This checklist is for information purposes only and is intended as a general guide. Connect Legal does not assume any responsibility for such information or for any loss or damage that may arise from the use of the information. 20
Appendix 4: Sample NUANS Name Search Corporations A NUANS corporate name search report is required by the federal and most provincial / territorial governments when granting new corporate names for use. The reports list similar existing corporate names and trademarks; they are used to determine the availability of a new proposed name. Ensuring that new corporate names do not create confusion with others is intended to protect Canadian businesses and consumers. Below is a sample of NUANS search for ROMP N ROAM Dog Walkers LIMITED 21
Appendix 5: Sample Master Business License 22
Appendix 6: Sample Articles of Incorporation 23
Appendix 6: Articles of Incorporation Cnt d 5. Restrictions, if any, on business the corporation may carry on or on powers the corporation may exercise. 6. The classes and any maximum number of shares that the corporation is authorized to issue: 7. Rights, privileges, restrictions and conditions (if any) attaching to each class of shares and directors authority with respect to any class of shares which may be issued in series: 8. The issue, transfer or ownership of shares is/is not restricted and the restrictions (if any) are as follows: 9. Other provisions if any: 10. The names and addresses of the incorporators are: First name, middle names and surname or corporate name Full address for service or if a corporation, the address of the registered or head office giving street & No. or R.R. No., municipality, province, country and postal code These articles are signed in duplicate. Full name(s) and signature(s) of incorporator(s). In the case of a corporation set out the name of the corporation and the name and office of the person signing on behalf of the corporation Signature / signature Signature / signature Signature / signature Name of incorporator (or corporation name & signatories name and office) Name of incorporator (or corporation name & signatories name and office) Name of incorporator (or corporation name & signatories name and office) ** The format of the form was adapted for this toolkit from the original. You can access the original form with instructions at Service Ontario Website. 24
Appendix 7: Sample Business Name Registration 25