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Canada - Self-Employment and Business Start Ups
If you want to buy an existing business then this can be an expensive way to go. This is because not only are you buying the business premises and any stock agreed in the purchase but you are also buying an existing customer base. In some ways many people find this preferable, particularly if they are new to the area as it cuts down on advertising costs as people are already aware of the business and the services offered. There are downsides to this way of owning a business though as you must ensure that any debt or legal issue concerning the previous owners are cleared before you take ownership as you could then become liable for them.
If you decide to buy a franchise then you should be aware of the practices of the company. Many franchises only use certain suppliers, they make their products in exactly the same way and their management structure in each store is exactly the same. This is to ensure uniformity across the whole chain. There is perhaps less flexibility to buying a business of this sort, but you do get to be a part of a large network of stores often of a well known brand. Subway, Starbucks and McDonalds are some of the more popular franchised stores.
There may also be additional costs associated with the purchase of a franchise. These can include on top of your initial investment, regular payments to the franchisor, (depending on the business) you may need to have a licence and there will be fees associated with that and not being able to source our own suppliers may prove slightly more expensive than using other companies. Again the services of a lawyer will be needed to ensure the contracts of sale are all completed correctly prior to money changing hands.
If you want to start a new business then this process is slightly more complicated. There are many more legal implications involved with starting your own business. You must first decide how your business is going to be run, is it a sole proprietor business, a partnership, a limited liability partnership or a incorporated company.
A sole proprietor company is one that is owned by a single person. That person is responsible for all decisions made and is liable for all debts incurred such as property overheads (rent, utilities etc) and bills from suppliers. As a sole proprietor then any income tax you pay is at the personal rate and not the small business rate and any personal assets can be at risk if the business fails, leaving creditors wanting money. If the owner passes away while still owning the company then the business passes to the estate. This is however perhaps the easiest type of business to start up and the costs incurred in doing so are extremely low by comparison.
A partnership can have more than just two people in business together. If you are going into business with friends or family then this is perhaps the better option for you. A legally binding written agreement should be in place to ensure that each partner has an equal or applicable share in the company. For example if each part puts in an equal amount of investment into the company then each partner will have an equal share of the company, if one partner puts in a higher percentage of money than the others it may be agreed that that partner owns a larger portion of the business.
Each partner is as equally responsible for the debts as the other partners, including any expenses incurred by the other partners. The personal income tax rate for each partner is applicable to any profits they make from the company. A lawyer must be used to ensure that the partnership contracts are all in order and that each partners share in the company is correct.
A limited liability partnership works in exactly the same way as the standard business partnership except that each partner only has a limited liability where other partner’s decisions are concerned.
If you are starting up an incorporated company then this is perhaps the most complicated of all to do. There will perhaps be the need for a lawyer right from the start of the proceedings as each shareholder will have to agree to the amount of shares they receive and it needs to all be noted in a legally written agreement. The company will be eligible to own property and is liable for all its own debt. The company can also be sued or sue another if need be. Each shareholder will have to pay the proportion of the company debt that matches their holdings for example, if they own 10% shares of the company they are liable for 10% of the company debt.
If the company is only going to be trading in the one province or territory then they should be incorporated under provincial law. However, if your company intends to trade nationally or indeed internationally then it must be incorporated under Canadian law (Federally). There is a drawn out process regarding starting up an incorporated business including the registering of the company name but the appointed lawyer should guide you through the process.
Annual business licences can be renewed at the local town hall. If you are a trade then a licence to practice in that field is required prior to starting the business. Sales tax must be paid to the Canada Revenue Agency (CRA) on all goods or services sold.
If you are looking for advice on funding such as grants to help towards the cost of starting your business then each province has their own local government advisory service.
Chartered Accountants of Canada
Canada Revenue Agency
Tel: 1 800 387 1193
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