Basic Legal
Considerations for
Starting a Business in
Ontario
Lecturer: Aaron Grinhaus, LL.B.,
J.D.
January 25, 2013
Enactus at University of Toronto
In the Beginning...



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1) Making sure you can
operate legally
2) Knowing you have
cash flow
3) Keeping costs low and
profit high
* Not-for-Profit and
Charitable will not be
covered in this lecture
Basic Legal Considerations:
Overview
1) Business vehicles
to choose from
 2) Liability and
protection
 3) Guaranties
 4) Regulated
Industries

Basic Legal Considerations:
Overview
Depending on industry, what will your
business will require?
 Are you in a regulated industry?
 Contracts: Service agreements, nondisclosure agreements, confidentiality
agreements, contracting agreements

– Will help you get paid and clarify the parties'
obligations
Basic Legal Considerations:
Overview
Websites: Copyright, terms of use, privacy
policy
 Advertising and Marketing: Originality
 Protecting your Products (Intellectual
Property)

– Patent
– Copyright
– Trademark
Business Vehicles

What are your
options?
–
–
–
–

Corporation
Sole Proprietorship
Partnership
Joint venture
What are the
differences?
Business Vehicles: Sole
Proprietorships
Business Names Act, RSO 1990, c B.17
 Very simple: business name and Master
Business License
 Advantages: inexpensive to set up; all
control and profits are yours; deductibility
of losses
 Disadvantages: personally liable for all
debts; taxed at individual rate (higher
than corporate rate); business relies
entirely on one person

Business Vehicles: Partnerships

Partnerships Act, R.S.O. 1990, c. P.5
– General Partnerships
– Limited Liability Partnerships

Limited Partnerships Act, R.S.O. 1990, c.
L.16
Business Vehicles: Partnerships

Advantages:
– Cost sharing; easy to start (little required
other than registration of name and partner
names, can be done online); inexpensive;
partnership agreement very flexible; loss and
profit sharing
Business Vehicles: Partnerships

Disadvantages:
– Partners personally liable for debts of
company (LP and LLP have limitations on this)
– Hard to find good partners
– Tax liability for partners can be high; taxed at
individual rate
– No protection from commercial or other legal
liability
Business Vehicles: Corporations
Corporations: Business Corporations Act, RSO 1990, c B.16

Advantages
–
–
–
–
–
–
Separate legal entity (Limited liability)
Lives forever until dissolved
Can divide Equity
Share Capital is Transferrable
Shareholder Agreements
Low tax rate; QSBC\CCPC is %15
Business Vehicles: Corporations

Disadvantages
– Heavily regulated
– Expensive to set up and maintain
 Onerous record and documentation requirements
–
–
–
–
Separate tax return
"Piercing the Corporate Veil" (e.g. Director and Officer Liability)
Residency requirements of directors
Without Shareholder Agreement, conflict can arise
 Oppression; litigation
Legal Considerations When
Setting Up a Business
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Federal\Provincial
incorporation
Liability: commercial
and otherwise
Ongoing costs in
administering
Local, provincial and
federal regulations
Tax
Legal Considerations When
Setting Up a Business

What do you need protection from?
– Contracts
– Law suits
– Debt

What types of risks are you exposing
yourself to?
– Professional liability
– Injury
– Commercial Disputes
Tax Considerations – Legal
Perspective

What taxes will you be liable for?
– Excise Tax (HST)
 Charged on most goods and services unless
exempt
 Excise Tax Act, RSC 1985, c E-15
– Income Tax
 Capital vs. Current Income
 Income Tax Act, RSC 1985, c 1 (5th Supp)
Tax Considerations – Legal
Perspective
Tax collection and remittance – Obligation
of Business
 Crown Trust Money: Personal Liability of
Proprietors and Directors

– Source deductions from payroll
– HST from customers
Tax Considerations – Legal
Perspective

Minimizing your tax liability: Structuring
– Depending on business vehicle can structure
in different ways to reduce tax liability
– Income Splitting: Family members\trusted
individuals\Partners
– Tax deferral: “Rollovers”
– Tax minimization: Deductions
– Capital Gains Exemption (Sale)
– Trusts
Planning for an Exit
Debt
 Retirement
 Sale
 Succession

Planning for an Exit
Debt – Bankruptcy
– Are you personally liable to bank, outstanding tax
 Retirement
– With debt: handing “keys to the bank”
 Sale
– Corporate or partnership\sole prop interest?
– Share sale or asset sale
 Succession
– Handing over to family members; structure is key

I WISH YOU SUCCESS!
THANK YOU
 QUESTIONS?
 Contact
info:
aaron@grinhaus.ca
www.grinhaus.ca