GUELPH LAWYERS SMITHVALERIOTE LLP

Frequently Asked Questions

Q: Do I need a lawyer in Small Claims Court?

A: No. You do not need representation in Small Claims Court. It is designed to be accessible to everyone and by everyone and in certain situations involving low monetary value you may prefer to pursue or defend a Small Claims matter on your own. However, you are re free to retain one if you so wish. For more information go to http://www.attorneygeneral.jus.gov.on.ca/english/courts/scc/default.asp

Q: What are the basic forms of business entities and what considerations should I be aware of with regard to my new business?

A: FORMS OF BUSINESS ENTITIES

1. Sole Proprietorships:
The individual is the business. Therefore liability is as an individual. You report your income as a person. Good for the beginning years or if the business is small and the income not large. You must register the name of the business, even if it’s just your name.

Registration: Ministry of Consumer and Commercial Relations, 393 University Avenue, Toronto, through kiosks locally. Cost of ~$75.00. No name search necessary, though recommended.


2. Partnerships:
Two or more individuals in a business. All partners report their income on a personal basis. Good for beginning years. As complexity increases the need for a Partnership Agreement increases. Beware of the Partnership Act. You must register the name. A partnership makes all partners equally liable and one partner can bind other partners irrespective of their consent.

Registration: Ministry of Consumer and Commercial Relations, 393 University Avenue Toronto, through kiosks locally. Cost of ~$75.00. No name search necessary though recommended.

Variation: Limited Liability Partnerships.


3. Incorporation:
Becoming a company, with Directors, Officers and Shareholders. There are over 900,000 companies in Ontario alone. The closely held corporation is very popular. Report income as a company. 

Registration: Ministry of Consumer and Commercial Relations, 393 University Avenue, Toronto, Ontario but may be done online and through agents. Cost of ~$350.00. Name Search is necessary, unless it is a numbered company (i.e. 999999 Ontario Inc.)($60.00) Will also need minute book and seal. ($120.00) 

3A. Why Incorporate/Advantages:

• i. Legal Status: Clear legal status. Banks are not inclined to lend money to tenuous entities.
• ii. Continuing Existence: The incorporated company exists for as long as desired and may be used for a variety of businesses. Becomes an asset in itself.
• iii. Limited Liability: Only in very exceptional circumstances will you be held accountable for mishaps, rather than the incorporation. Protects your personal assets.
• iv. Taxes: Never incorporate if the business is in a deficit position. If the business is earning a good income, the taxes paid may be reduced in a corporate vehicle, resulting in more net income in your hands personally.......Working spouse's wages may be deductible.
• v. Investors: A handy vehicle for investors, by way shares or issue or promissory notes secured against the assets of the Corporation.
• vi. Organization: If there is more than one investor, and more than one or two principals, the by-laws, or a shareholders agreement, provide clear guidance for the conduct of the business and each individual's responsibilities, and should be done.

3B. Disadvantages:

• i. initial cost which is approximately $1200.00;
• ii. better regulations and records are required (this can be an advantage);
• iii. Some restrictions to abide by;
• iv. ongoing filing compliance (consequences of failing to file are serious).
   

2. FUNDING AND FINANCING FOR SMALLER BUSINESSES

1. Canadian Small Business Guide (CCH) and other source materials have listings. For example:

Research

• R & D grants
• Industrial Research Assistance Program
• Program for Industry/Laboratory Projects Exports
• Export Development Corporation
• Program for Export Market Development Products/Machinery
• Machinery Program

2. Banks:

• 97% short term financing and 66% long term financingcollateral, cash flow, management process are important
• Making a Loan Application
  • A. Executive summary (precis)
  • B. Business/Description
  • C. Owner/Manager Profiles
  • D. Business Projections (Marketing Plans)
  • E. Financial Statements
  • F. Purpose for the Loan
  • G. Amount Requested
  • H. Repayment Schedules

3. Family, and Your Own Funds?

• Debt/equity ratio is important to the Banks
   

4. Private Investors

• Local
• Contacts via local Chamber of Commerce

3. LAWS WHICH APPLY TO A BUSINESS

Federal:
Canadian Human Rights Code
Canadian Business Corporations Act
(federally incorporated businesses only)
Unemployment Insurance Act
Canada Pension Plan Act
Canadian Corporations Act (rare)
Competition Act
Income Tax Act
Goods and Services Tax


Provincial:
Occupation Health and Safety Act
Ontario Business Corporations Act
(provincially incorporated businesses only)
Employment Standards Act
Retail Sales Tax Act
Workers Compensation Act
Ontario Human Rights Commission
Ontario Health Insurance Plan (OHIP)
Business Names Act, 1990

Municipal:
Zoning and Bylaws
Business Licences and Tax
Realty taxes


4.ONGOING OTHER CONCERNS

1. Getting Paid

Deposits

• Discounts for large orders
• Discounts for early payment
• Interest on overdue accounts
• "Goods are property of the vendor until payment is received in full" and registration of your interest under Repair and Storage Lien Act or Personal Property Security Act.
• Credit references
• Keeping tabs on your receivables:
   

1) net sales
# days in the accounting period = average sales per day

2) receivables
average sales per day = average collection period 
(the # days sales are tied up in receivables)


2. Location

• Importance of the location - consider who your customers are
• Buy or lease: each has special considerations
• Leases: net/net/net vs. net/net vs. net leases

3. Personnel

• Hiring process: budget, plan your objectives
• Incentives other than pay (flexible work hours, profit sharing, responsibility)
• Responsibilities as an employer
• Ensuring confidentiality of the business

4. Franchises

• Do your homework - Canadian Franchise Association
• Standard contracts
• Costs: franchise fees, royalties, promotion, management assistance

5. Trademarks, Copyright and Patents

• Trademark: a word, logo or other symbol that identifies your product
• 1-year $1,200.00
• Patents: legal right to the ownership of an invention
• 2 to 3 years and $4000.00 to $5000.00 cost
• Copyright: protects copying without permission/protects the form of expression of creative material/creates a presumption of ownership

6. Trade Names

• Registered under the Business Names Act, S. O. 1990
• Does not afford you exclusive right to carry on under the name (it is not a trademark).

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