Small Business/Business StartUp
A small business start up requires special care when it is established in Vancouver, B.C. Structuring a business correctly and having strong accounting and bookkeeping practices in place can help business owners to avoid problems while protecting their bottom lines. Small business owners must comply with the city, provincial, and national regulations for permits, licenses, and taxes. There are multiple requirements that businesses must follow when they operate in British Columbia. By working with our accounting and business professionals, you can ensure that you are operating your business in the right manner and avoid potential problems that could arise.
Choosing the right company structure
Before you register your business name, you should decide which type of legal company structure you will use for your business. There are several options for business structures, including the following:
- sole proprietorships
- partnerships
- corporations
- cooperatives
- societies
Each of these types of structures has advantages and disadvantages and may require different tax treatment. We can help you to understand the options that you have and help you to choose a structure that will work the best to meet your needs and protect you from liability. If your company is a non-profit, it must be registered as a society. The other four types of structures represent different forms of business ownership. We’ll briefly detail the advantages and disadvantages of each of the business ownership structures.
Sole proprietorships
A sole proprietorship is the simplest business structure. It is a business that is operated and owned by one person. A sole proprietorship can be operated under your name or under a different name that you have picked. This is the most popular type of business ownership, and it has advantages and disadvantages.
A major advantage of a sole proprietorship is the comparative ease with its set up. Registering a sole proprietorship with the province is not required. However, you may need to register your business anyway to obtain a business license. Registering a sole proprietorship is less expensive than registering a corporation. Another advantage of a sole proprietorship is the simplicity of the taxes. Sole proprietors declare the income from their businesses on their personal income tax returns instead of filing separate tax returns.
While sole proprietorships have some advantages, there are several disadvantages. In some cases, being the sole owner of a business can cause serious problems if things do not go well. When your business is structured as a sole proprietorship, your company is legally considered to be a part of you. This means that you will be personally responsible for all of the liabilities and debts of your business. If your business fails, your personal assets can be seized to discharge some of the liability that has been incurred.
A lack of protection from personal liability is the main disadvantage of sole proprietorships. Some other disadvantages include an increased difficulty of raising capital, a lack of flexibility in taxes, and the potential for poor management if you do not have the requisite knowledge to effectively operate your business.
Partnerships
If you have one or more business partners, you can choose to structure your business as a partnership. There is no legal limit on the number of partners who may be involved. Under the Partnership Act, the following three types of partnerships are recognized in British Columbia:
- General partnership
- Limited partnership
- Limited liability partnership
A general partnership is the most common type of partnership. Two or more people who decide to operate a business together can form a general partnership. In general partnerships, the partners are jointly and severally liable for the debts and liabilities of the partnership.
Limited partnerships have general and limited partners with different responsibilities and rights. The limited partner will have a limit on his or her liability while the general partner’s liability will not be limited.
Limited liability partnerships do not have general partners. This means that all partners are limited partners with protection from liability.
Partnerships can sign contracts and borrow money in their own right. The primary advantage of a partnership is in the working relationship between the partners instead of the legal entity structure. Partners who have complementary skills and are comfortable sharing decision-making can build successful partnerships.
Like sole proprietorships, partnerships have simpler taxes. They do not have to file corporate income tax returns or pay corporate income tax. The partnership information passes through to your T1 income tax form.
A disadvantage of a general partnership might occur when one partner incurs debts in the business’s name. When this occurs, the other partner can be held to be liable for those debts. Partners can also be held to be responsible for any omissions or wrongful acts committed by other partners during the ordinary course of business.
There can also be a significant degree of acrimony when it comes time to dissolve one that is not working well. If you decide to form a partnership of any kind, drafting a partnership agreement is crucial.
Corporations
Because of the potential for personal liability in a sole proprietorship or general partnership, many business owners consider incorporating their businesses. A corporation is a legal entity that is separate from its owners and shareholders. This means that a member of the company cannot be held to be personally liable for the company’s debts, actions, or obligations. Shareholders are only liable for their owned shares that are unpaid.
The liability protection offered by corporations is a significant advantage. However, this structure is the most difficult and expensive type of business structure to set up and manage. This is especially true if you decide to incorporate your business both provincially and federally, which involve two separate procedures.
If you incorporate your company federally, you will have the right to operate it under its corporate name across Canada. Incorporating your company in British Columbia will give your company the right to operate under its corporate name in B.C.
The administration of corporations is more expensive, and they are required to file corporate income tax returns with the Canada Revenue Agency on an annual basis. They are also required to file returns with the Ministry of Finance in B.C. and potentially in other provinces in which the corporation operates. Depending on your business’s type and your plans, a corporation might be the best option for you because of the protection from liability.
Cooperatives
Cooperatives are incorporated companies that are controlled and owned by their members. Cooperatives are allowed to enter into contracts under their corporate name. The individual members’ liability is limited to the value of the shares that they hold. Under the Canada Cooperatives Act, you are only allowed to structure your business as a cooperative if it is organized and will be operated as such.
The structure that you choose for your business will affect many things, including the administrative costs, your exposure to liability, and your tax planning. It is an important decision that should be carefully planned. We can explain the different types of business structures and talk to you about which type might work best for your business. You should choose the structure for your company before you name it. If you start as a sole proprietorship and later decide to incorporate, that is possible. The structure that you choose now should be the one that reflects your current needs and circumstances.
Register your business name
If you choose to structure your business as anything other than a sole proprietorship, you will need to register your business name. If you plan to incorporate your business in British Columbia, you will need to check the names that have already been registered in the province by using the name request search tool. Your business name cannot be too similar to another business that is already registered. Once you find a name that has not been registered, you can submit a name request form online on the B.C. Registry Services website or in person at a Small Business BC office near to your location. When you fill out the name request form, you will need to provide your personal information and information about your business structure along with your name choices. You are required to pay a fee of $30 plus taxes if you submit your application online. If you choose to submit it in person, the fee is $50 plus taxes.
After you receive notification from the B.C. Register Service that your requested business name has been approved, you will need to register it within 56 days. Sole proprietorships and partnerships can be registered through the OneStop Business Registry online with a $99 fee or in person at a Small Business BC office with a $40 fee. Corporations can be registered with the province online through Corporate Online, or you can incorporate your business with the help of a lawyer.
Corporations can be registered with the province online through Corporate Online, or you can incorporate your business with the help of a lawyer. The fee for federal incorporation is $200 online or $250 if you incorporate your business by mail. If you choose to submit your paperwork by mail, you can send it with the fee to the following address:
Corporations Canada
235 Queen Street
Ottawa, Ontario
K1A 0H5
Applications for federal incorporation can also be submitted by email at the following email address:
IC.corporationscanada.IC@canada.ca
Get a business number
To operate your business, you must get a business number or BN. This number is used to pay taxes, pay the provincial and federal GST, and make payroll deductions. A business number can be obtained on the Canada Revenue Agency’s website or by telephone at 800.959.5525.
Get your business license
If your business will be located in Vancouver, you will need to apply for a business license. The types of businesses that require business licenses to operate in Vancouver include home-based businesses, commercial or industrial businesses, and businesses that are located outside of the city but that conduct business within it. You can get your business license from the City of Vancouver License Office by calling 311 from within Vancouver or 604.873.7000 from outside of the city.
Business optimization
If you have an existing business, business optimization can help you to improve its efficiency and reduce costs. We offer business optimization services to businesses of all sizes in British Columbia. This process involves measuring the business’s productivity, performance, and efficiency and identifying ways to improve them. This can include management accounting in which management problems are analyzed numerically, business metrics, cost examination, and other approaches to help your company to identify and solve problems that are holding your business back.
We can evaluate your business processes and work with you to identify areas in which they could be made more efficient. We can also help you to identify areas in which your company can cut costs to improve its bottom line. We can conduct a business performance analysis to provide you with in-depth information and recommendations. When you receive your business performance analysis report, you can then take actionable steps to reduce the inefficiencies in your company, reduce costs, and improve its performance.
Tax planning
Tax planning is very important for a small business start up and for small businesses of all types. Planning can help you to identify credits for which you are eligible and to save money on the taxes that your business will have to pay. It can also help to ensure that you comply with all of the tax laws so that you can avoid costly penalties.
How you will file taxes for your business will depend on its structure. If you have a sole proprietorship or partnership, you will report the income you earn from your business on your T1 personal income tax return. If you have a corporation, you will need to file the T2 corporate income tax return on an annual basis.
Businesses also must collect and pay the provincial general sales tax or PST of 7% and the federal GST of 5% on most goods and services that are provided to customers. You must register a GST account with the Canada Revenue Agency and notify your customers that you are collecting the tax. At the end of the reporting period, you will need to file a GST/PST return and remit the taxes that are owed. You must keep accurate records that support the information that you report on your GST/PST return. You should retain these records for at least six years in case the CRA asks to review them.
Payroll
If you have employees, you might benefit from getting help from Ensight Cloud CPA to make certain that it is performed accurately and on time. You must deduct the Canada Pension Plan and Employment Insurance from your employees’ paychecks along with their territorial and federal taxes. These amounts must be remitted to the appropriate agencies on time. Payroll is a major headache for many businesses because it takes hours and mistakes can be costly. We can handle your payroll for you and ensure that it is accurate. After the end of the year, we can also make certain that your employees receive their T4 forms on time to file their personal income tax returns.
Bookkeeping and reporting
Keeping accurate books is vital for businesses. Many small businesses do not have the resources to have full-time bookkeepers on staff. Instead of spending hours updating your books each month, outsourcing your bookkeeping tasks to us can help to save you time and money. When your books are not up-to-date, you will not be able to understand how your business is doing at any given time. We can help you to keep your books up-to-date. We also can perform audits of your books and send you regular reports so that you can quickly see how your business is doing and take steps to improve its performance. Keeping accurate records is also important for securing capital and tax reporting. If your accounting records are inaccurate, it could cause you to make misinformed decisions that could harm your business.
When your business is new, beginning with good tax strategies can help to improve the chances that your business will succeed. We can help your company to start on the right foot so that you will be less likely to make mistakes that could harm your business.
Contact us today
When you work with the professionals at Ensight Cloud CPA, we can help you to plan so that your small business can improve and grow. We have the experience and knowledge to help small businesses grow, and we view your success as our own. Working with us can help you to avoid costly mistakes while you concentrate on making your business more profitable. Contact us today to schedule a consultation to learn more about how we can help you.
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Susie Song
CPA CGA MBA.
Managing director at Ensight Cloud CPA. Susie has extensive experience in multiple industries.
