Starting a business in Canada is a dream for many newcomers who’ve moved here to build a better professional and financial future for themselves. If you’re planning to start your journey as an entrepreneur, you’ll first need to understand the rules and regulations for owning a business in Canada.
The legal aspects of starting a business vary by province and can be a little confusing for newcomers. We’re here to guide you through the process of registering your business, getting the permits and licences you need, and adhering to all other regulations that apply when you start running a business in Canada.
In this article:
- Decide on a suitable business structure
- Register a business name
- Open a business bank account
- Get a business number and tax accounts
- Get your business licences and permits
- Register for benefits for entrepreneurs
- Understand tax regulations for entrepreneurs
- Hiring employees as an entrepreneur
- Stay updated on regulatory matters through networking
The business structure you choose will determine your ownership, business liability, tax rates, and much more. There are five common types of business structures in Canada:
- Sole proprietorship: This type of business is the easiest to set up. You’ll be the sole owner of your business, but you’ll also be personally liable for any debt your business accrues.
- Partnership: This type of business is jointly owned by two or more individuals. Each partner owns a percentage of the business, depending on their investment and involvement, and they share the burden of liabilities or losses accordingly.
- Corporation: A corporation is an incorporated legal entity, which is separate from its owner/s. Unlike a sole proprietorship or partnership, your business income will be subject to corporate tax rates and you’ll not be personally responsible for business debt or losses.
- Cooperative: This incorporated business structure is democratically controlled by a group of people. The founders don’t make a profit and the earnings are shared among members or reinvested in the business.
- Non-profit: This type of organization provides a product or service that benefits the community, such as a charity, club, etc.
You can research business structures prior to your arrival in Canada to get a head start on your entrepreneurial dream.
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Before you start your business in Canada, you’ll need to find a unique name for it. Ideally, you want to choose a name that’s easy to remember and representative of your business. You’ll need to check if the name is available, as you can’t legally use a name that’s the same or very similar to that of an existing business.
You can start by conducting a thorough internet search for the name. You should also check the government’s national name databases like Canadian corporate names and trademarks database (Nuans) and Canada’s business registries and trade names registered in your province or territory. Once you’ve found a suitable, available name, you’ll need to register your business name with the government.
Once you’ve registered your business name, you can register or incorporate your business. For businesses that are incorporated, the provincial/territorial or federal incorporation process typically includes name registration. You may also wish to register a trademark to better protect your brand name.
Do I need to register my business if I’m a sole proprietor in Canada?
If you’re a sole proprietor, you may be able to operate a business under your legal name, without having to register a separate business name. However, if you want to use a name that’s different from your legal business name, you’ll need to get it registered.
How long does it take to register a business in Canada?
Registering your business at the federal level is a simple process that typically takes around five business days. In most provinces, you can register your business in-person, by mail, or online. Depending on the province you’re registering in and the method of application, you’ll receive your business licence within one to 35 days.
How much does it cost to register a business in Canada?
The cost of registering your business will vary based on the province you’re in and your business structure. In Ontario, if you have a sole proprietorship or partnership business, you’ll need to pay $60 to $80 to register your business plus between $8 to $26 for name searches. For Ontario-based incorporated businesses, the government will charge you $300 to register your business.
If you have a sole proprietorship or partnership in British Columbia, you’ll need to pay $31.50 for a Name Request number and $40 to register your business. Registering an incorporated business in British Columbia will cost $350 in addition to the $31.50 for name registration. Be sure to check your provincial requirements and fees before initiating the registration process.
If your business is incorporated, you’re legally required to open a business bank account under your registered business name. While sole proprietorships and partnerships are not required to have a business bank account, it’s still a good practice to open one to separate your personal and business finances.
A business bank account allows you to easily track business expenses and keep clear records in case the Canada Revenue Agency (CRA) ever requests to audit your business. Having a business bank account will also make it easier for you to apply for a business line of credit or a business loan as your business grows.
If your business is incorporated or if you need a CRA business account for Goods and Services Tax (GST) or Harmonized Sales Tax (HST), payroll deductions, corporate tax, or import-export, you’ll need a business number in Canada. A business number is a unique nine-digit number that serves as a standard identifier for your business.
Typically, you’ll get a business number if you:
- Register your business using Business Registration Online
- Register for CRA program accounts like GST/HST, payroll deductions such as Canada Pension Plan (CPP), excise duties, or import-export
- Incorporate your business at the federal level, or
- Register or incorporate your business in British Columbia, Manitoba, Nova Scotia, Ontario, Saskatchewan, New Brunswick, or Prince Edward Island.
In provinces where there is no Harmonized Sales Tax (HST), you may also need to register for provincial taxes. In British Columbia and Saskatchewan, the provincial tax component is referred to as Provincial Sales Tax (PST). In Manitoba and Quebec, it’s called the Retail Sales Tax (RST) and Quebec Sales Tax (QST) respectively.
While most businesses don’t require federal or provincial licences, you might need to get certain business licences and permits at the municipal level. For instance, if you’re planning to open a restaurant, cafe, or driving school, you may require a municipal operating licence. Businesses like daycares or day nurseries may require a food premises inspection and food handler certification at the municipal level, as well as a provincial child care licence.
If you have an office or perform activities that will disrupt neighbours, you’ll likely require a municipal business licence. You can find location-specific information on the licences and permits required for your industry on the government’s BizPal platform.
Some municipalities require certain businesses to get zoning and building permits. You’ll also need permits for signs, access, electrical work, and other elements not included in your building permit. If your business has an environmental impact or if you work with hazardous materials, you’ll need to get a federal or provincial environmental permit.
Employment Insurance for self-employed people
If you run your own business or control more than 40% of your corporation’s voting shares, the Employment Insurance (EI) special benefits program can provide you with access to benefits as early as 12 months after registering.
There are six types of special benefits you’ll be eligible for under this program, including maternity, parental, sickness, compassionate care benefit, family caregiver benefit for children, and family caregiver benefit for adults. In 2021, the maximum amount you can receive from EI special benefits is $595 per week.
You must be a Canadian citizen or permanent resident (PR) to apply for this benefit, and must have decreased the time you spend on your business by over 40 per cent for at least one week. Also, you must meet a minimum threshold of self-employment income in the year before you apply for EI special benefits.
As a business owner, you’ll need to pay taxes on the income your business generates. In Canada, tax regulations for businesses vary based on business structure. You’re required to include income from your sole proprietorship or partnership business in your personal income tax return. If your business is incorporated, you’ll need to file a corporation tax return.
You’re allowed to make certain business expense deductions from your business income. While salaries for employees are a deductible expense, your own salary or benefits cannot be deducted as an expense.
All businesses and self-employed persons are required to keep business accounting records and supporting documents, including those that aren’t attached along with your tax return, for at least six years after the relevant tax year.
As your business starts growing, you may not be able to do everything yourself and may need to hire employees. There are certain legal obligations that every employer in Canada must fulfil, including adhering to existing employment standards and making mandatory payroll deductions.
In most cases, employment standards are provincially regulated but there are some federally regulated industries and workplaces as well. Employment standards promote fair treatment and work-life balance for employees and set out rules for hours of work, overtime, minimum wages, layoffs and termination, statutory holidays, leaves of absence, minimum hiring standards, etc.
As an employer, you’ll also be responsible for payroll deductions and will need to open a payroll deductions account with the CRA. You’ll need to calculate and deduct CPP, employment insurance (EI), and income tax on behalf of your employees and remit these to the government along with your (employer’s) share of CPP and EI.
You should check your provincial Workers’ Compensation Board (WCB) to see if and when you need to register for Workers’ Compensation Insurance. Almost all incorporated businesses and sole proprietorships or partnerships that hire employees are required to have this insurance to provide workers’ compensation benefits for injuries, disabilities, or death.
It can be hard to keep track of changes in regulations while you’re focusing on running your business. Joining your local Business Improvement Area (BIA) association or professional associations in your industry can help keep you informed of upcoming regulatory changes that could impact your business.
These associations are also a great platform for networking with potential suppliers, customers, and partners for your business or to raise awareness about your products and services.
As a newcomer, setting up your own business in Canada can be an exciting opportunity, both professionally and financially. However, the regulations for entrepreneurship or self-employment may be different from your home country. These basic tips will help you understand the regulatory requirements that you’ll need to adhere to as you prepare to register your business and become an entrepreneur in Canada.