It is vital to legally set up your new small or mid-sized business to ensure that you take advantage of the various options and comply with federal, provincial and local government regulations.
It is your legal right to organize your financial affairs to pay the least amount of taxes.
The first step is to decide what legal form your business will be. There are basically three options:
- Proprietorship – this is the simplest form of running a business. The net income or loss is reported on your personal tax return. It is not a separate legal entity – thus you are personally responsible for its debts and obligations. Trade names can be registered with BC Registry Service for a small fee.
- Partnership – a form of business operation owned by two or more individuals who manage the business and share the profits. In BC, partnerships are governed by the Partnership Act. There are different types of partnerships which your lawyer can advise you on the best option.
- The net income or loss is reported on the partners’ personal tax returns. It is not a separate legal entity – thus the partners are personally responsible for its debts and obligations. Trade names can be registered.
- Corporation – commonly referred to as a “company”, incorporation creates a legal entity separate from its shareholders (owners) which has an unlimited life expectancy.
A company can acquire assets, incur debt, enter into contracts, and be a party to litigation. It files corporate tax returns, separate from the shareholders. Highly recommended to retain a lawyer to do the incorporation.
Red Tape and Other Important Stuff
Dealing with government agencies can be a daunting undertaking and not for the faint of heart.
You need to ensure that you are in compliance with these government regulations:
- Initial registration with CRA (Canada Revenue Agency) and other applicable agencies.
- Set up the payroll system such as Quick Books Payroll to correctly account for payroll deductions including income tax, Canada Pension Plan (CPP), Employment Insurance (EI) and others such as health plans or union dues.
- Sales tax – determination and reporting of GST (Federal – General Sales Tax) and PST (BC – Provincial Sales Tax).
- Workers Compensation – payroll reporting for mandatory WorkSafe BC.
- City business license.
- Preparation and filing of annual income tax returns .
- In the event of an audit, deal with their demands and provide the requested data in a timely manner – all without disruption to your business operations.
Financial and legal rudiments are vital for business owners so that they are following the myriad of government laws and regulations.
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