How to Setup a Business in Ontario

How to setup a business in Ontario?

Setting up a business can be an overwhelming task with a lot to comprehend. It all starts with a dream and a vision, but how do you turn that dream into reality? The dream of becoming your own boss and having the freedom to make your own decisions can be a complicated one at the beginning. Once you have determined on the actual business and its inner workings, you will have to move on to the next step of executing that business. This is where a lot of people get stuck and don’t really know where to go next.

In this article I will explore and shed light on several different business structures available in Ontario. I will also explain how to be in compliance with Canada Revenue Agency (CRA) tax obligations.

The three most common structures are Sole proprietorship, Partnership, and Incorporation.

1. Sole proprietorship

Sole proprietorship, also known as a proprietorship or a sole business, is a type of business that is owned and operated by a single individual. Other individuals do not participate or own the business. This is the most simplest form of operating a business.

A sole proprietorship is simple to setup, you can operate the business under your personal name. If you desire to use an operating name you are able to register a Master Business License and operate under an operating name. The requirements for setting up a sole proprietorship are outlined in the provincial legislation.

The shortfall with a proprietorship is that the sole proprietor is personally liable for the business. There is no legal separation between the business and its owner. This creates unlimited liability from creditors and other business debts.

What are the setup cost?

The setup costs are relatively low. To Register a Master Business License online the government fee is $60. There are additional fees for name search and enhanced business name search.

How is a sole proprietorship taxed?

A proprietorship is not a separate legal entity and is taxed based on the proprietors personal income. A separate tax return is not required. The income or losses of the proprietorship will be taxed at the applicable marginal rate of the individual. If the business is profitable this may put you in a higher tax bracket.

There is no need to obtain a CRA business number for a sole proprietorship. However, in certain circumstances you will be required to register a HST number. If you have employees you will be required to register a payroll number. All of which can be done over the phone by calling the CRA business line.

The income and expenses from the sole proprietorship can be reported on your T1 Personal Income Tax return on the T2125 Statement of Business Activities form. You will be required to keep all your receipts for income tax purposes.

2. Partnership

Much like a sole proprietorship, a partnership is not a separate legal entity. A partnership arises from the legal relationship between two or more people that join forces to start a business. The partners do not have limited liability from creditors and personal assets could be seized. This has given arise to several different partnership structures, including General Partnerships, Limited Partnerships, and Limited Liability Partnerships; each of which has a different level of personal liability.