From tax planning to payroll to protection from liability, it’s difficult to know the right choices to make and how they will affect your business in the future when registering it at startup.
Laying the right foundation and building the proper structure is essential for your small business initiative to grow seamlessly into the successful organization you envision for it. The wrong decisions could mean lost opportunities to reduce expenses, wasting money to re-register your business down the road, potential financial penalties, or other challenges and expenses caused by not strategically registering your business from the start.
This is why you should consider outsourcing your business registration to a small business accountant. Not only are accountants experts in business planning and choosing the right business structure for your future needs, but they are also subject matter experts on how to set up payroll, tax accounts, government programs etc.
Registering your business may not be as straightforward as it seems. These are a few of the obligations involved with registering your small business with the government.
Registering Your Business
Taking advantage of professional business registration services ensures that your business is not only in full legal compliance but that it’s also optimally classified to reduce your tax and operating expenses. It also frees you up to make better use of your time by focusing on more lucrative tasks.
The decision on the right business structure for your startup affects your business’s tax obligations and your own personal liability, to name just two concerns that must be considered. There are three main business structures that you can choose from when registering your business, each with its advantages and disadvantages:
- Sole proprietorship
- Partnership
- Corporation
The decision on which to choose depends on many factors, including the industry you’re in, your operations and your personal and professional goals, just to name a few.
Advantages and Disadvantages of the Three Main Business Structures
These are some of the benefits and downsides of each business structure:
- Sole proprietorship
- This is the easiest business to register and the most basic business structure.
- It requires minimal bookkeeping and registration fees.
- However, it provides no legal separation between you and your business, leaving you personally liable for debts and lawsuits incurred by the business.
- Your personal tax rate will increase when the business is successful.
- It can be harder to secure investments.
- Partnership
- This is a business shared by two or more people and is as easy to set up as a sole proprietorship.
- Allows the partners to pool resources and share financial obligations.
- The partnership doesn’t file its own taxes. Each individual partner files their own tax return.
- Partnerships also don’t protect against liability, and your personal tax rates will increase if the business is successful.
- Disagreements among partners can affect the business.
- Corporation
- This structure offers the most financial and legal protection because the corporation is a separate entity from the owner(s).
- Corporate tax rates remain relatively the same and are lower than they are for individuals.
- You can control your own personal tax rate as you are only taxed on funds you draw from the company.
- Corporations cost more to set up in legal and accounting fees. They are also more complicated to dissolve.
- Sole proprietorships and partnerships can use business losses to reduce their personal income tax amounts. Losses by corporations apply solely to the business.
Choosing the right structure from the beginning is crucial because:
- There is a lot of complicated accounting that will need to be done should you decide to change your business from a sole proprietorship to a corporation after the business has accumulated assets and liabilities.
- Tax planning strategies do not apply retroactively.
This is another example of why you should outsource your business registration.
Other Components of a Business Registration
There are many different programs you must register with at startup. Along with helping you in understanding business accounting, an accountant will ensure that your small business is registered with all the necessary programs, including:
- Registering your business with GST/HST.
- Opening a payroll account with the CRA.
- WSIB if your business is required to by law. Find out here if you are.
An accountant knows all the programs a business must register with, when it must do so, and the government agencies it must be licensed with.
Another crucial responsibility related to registering your small business is preparing your minutes book.
A business’s minutes book is a record of all of its activities. These records help track information for corporate, federal, and tax purposes. It will generally include:
- A certificate of incorporation.
- Corporate bylaws.
- Director, officer, and shareholder registers.
- Share certificates.
- Company structure.
- Minutes of meetings.
Under the Ontario Business Corporations Act (OBCA) and the Canada Business Corporations Act (CBCA), all businesses in Ontario and Canada are legally obligated to keep an updated minutes book.
A minutes book is essential to your business’s stability and legitimacy. It’s crucial that it is established correctly and early in the business’s existence and that it’s diligently maintained.
Don’t forget to check out our accounting tips for a small business!
