At some point in your entrepreneurial journey, you’re probably going to have to register your business. Understanding the process can be overwhelming, so we’re breaking down the basics and giving you a step by step guide of business registration in Canada.
What does it mean to register a business in Canada?
You’ve heard about business registration, but what does it actually mean to officially register your business in Canada? When you register your business, you inform the government that you are operating under that registered business name. When you incorporate in Canada, your business becomes a distinct legal entity, with the same rights and obligations as any citizen. What this means is that in a worst-case scenario, if your business goes bankrupt, gets sued or fails to pay back a loan, the business itself will shoulder that burden, rather than you, the owner and creator of the business. You are not required to register your business in Canada if you operate under your own legal name, but there are many benefits to registering your business, like a lower tax rate and access to funding.
Types of business registrations in Canada
The first step to business registration in Canada is deciding what type of business to register as. Before you even start worrying about registering a business name, you’ll need to determine whether your business will function as a corporation, a sole proprietorship, or a partnership. Business registration refers only to a sole proprietorship or a partnership, while incorporation refers to the formation of a corporation. We’ll go over the meaning of each type and how to choose the one that’s right for you.
A sole proprietorship is a business that is owned by only one person. The owner has full responsibility when it comes to making decisions, and most importantly, the business is not a separate entity from the owner. This means that you will assume all of the risks of the business and will be held personally responsible. A sole proprietor can choose to register a business name or use their legal name.
A partnership in business refers to a company that is owned and operated by two or more individuals, each contributing to the business through money, labour, or property. A partnership can be formed using a verbal agreement, but most involve a written contract detailing the rules of the partnership. The partnership does not report its own income tax; instead, each partner files for a share of the income or loss on their own personal, corporate or trust tax return.
When you register your business as a corporation, it becomes its own separate entity. Incorporating in Canada also provides company name protection, whereas a sole proprietorship or partnership does not. As an owner of the company, you are not personally responsible for any losses the business incurs and likewise cannot report them on your own tax returns. This is often referred to as limited liability, but it won’t protect you in all situations, especially when it comes to borrowing money from a creditor.
How much does it cost to register your business in Canada?
Let’s face it: starting your own business is not cheap, so you need to plan ahead for any additional fees you might come across when incorporating your business. Depending on your situation, you’ll need to determine whether to incorporate federally or provincially. Let’s break down the main differences between federal and provincial incorporation.
When you register or incorporate your business, you can choose to do so provincially or federally. If you only intend to conduct business in one province, there is no need to spend your resources on federal incorporation. If later on, your business expands and you want to start selling in another province, you can register your business in that province at that time, assuming that your business name is still available.
With federal incorporation, you can operate throughout the country under the same business name, even if that name is being used by a different company in another province. Some people also believe that a federal incorporation carries more global recognition than provincial incorporation. If you choose to register federally, you will still need to register your business in any province you operate in, which involves filing an extraprovincial form. The fee for doing so varies across provinces. Federal incorporation takes more time, effort and money than provincial registration, so if you’re only operating in one province right now, you might want to register or incorporate provincially and decide later on if federal incorporation is necessary.
When filing for federal incorporation through Corporations Canada the fee to incorporate is $200. You’ll also need to provide a NUANS name search report for $13.80 to confirm that you are registering a business name that is not already taken. You can also file your annual return through Corporations Canada for $12. In addition to registering your business name federally, you’ll need to follow whatever provincial laws are in place, as well as pay additional related fees. Keep in mind that more expenses will come up when it comes time to pay your corporate taxes or renew your provincial registration, so make sure to set aside the necessary funds, so you’re not scrambling last minute.
How to start a business
- Decide if your business will operate as a sole proprietorship, a partnership or a corporation.
- Choose a business name and search NUANS to make sure it’s not already in use.
- Determine which provinces or territories your business will operate in and complete the necessary forms.
- Register your business name.
Now that you’ve got a good handle on how to start a business by registering your business name, you’ll be able to hit the ground running with your new entrepreneurial pursuit. We can’t wait to see what you come up with!
Hannah Kaplan is an abstract painter, illustrator and writer located in Toronto. She graduated from OCAD with a BFA in Interdisciplinary Arts: Life Studies in 2017, part of the first class to graduate from this new program. Hannah’s art practice is based on a desire to express her subconscious intuitively in order to promote healing through art, emphasizing ideas of self-acceptance through creativity. Her writing work generally focuses on helping entrepreneurs start their business through fact-based articles.