| Oct 06, 2005

Legalese - October 6, 2005

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Legalese - October 6, 2005

Thinking of starting a business? Part II

by Peter Graham, staffLawyer

I now have some idea of how Sylvester Stallone felt as he finished Rocky, Rocky 2, Rocky 3.... Upon the completion of last week's column on starting a business, I was just warming to the task. There was so much more to say.

Last week we reviewed the basic forms of business ownership. Deciding which form is only the beginning of the legal part of the planning process required before you open your doors.

If you decide to operate as a sole proprietor and the name of your business is other than your own name, you must register it with the provincial government. Depending on the type of business you may also require a licence from the provincial government (e.g. plumbers, mechanics etc.) and a municipal licence (e.g. restaurant, beauty parlour etc.). You must also check such things as local zoning to ensure that the location of the business does not contravene local by-laws.


If you decide to operate as a partnership, you and your partners must register the partnership name with the provincial government. The licensing requirements and zoning must also be reviewed. In addition, from a practical point of view it is important to decide what role each partner will play in the partnership. What are the expectations of each of the partners? Details should be worked out as to how the profits and losses will be divided. What happens if one of the partners wants to leave the partnership, or is unable to continue? Careful consideration of these issues before the business starts will avoid many potential problems. It is recommended that these arrangements be written out in a formal partnership agreement to avoid any misunderstanding.

If you decide on operating the business as a corporation, an application must be made for Articles of Incorporation. The name of the corporation must be searched and evidence supplied that it is not confusing with the names of other businesses.

The key element to remember in incorporation is that you have created a separate legal entity. This artificial “person” makes its decisions differently than a sole proprietor. Staff is hired to carry on the day to day operations of the business. Major decisions are made by the Board of Directors (the "guiding mind of the corporation"). The Board is responsible to the shareholders. In many small businesses, the staff, the Board and the shareholders are the same people. Even so, corporate formalities must be followed. Board decisions and annual shareholders meetings must be properly documented. An annual return must be filed setting out such things as the location of the current head office of the corporation and the members of the Board.

There are many government programs available to assist you in preparing business plans and obtaining financing for your business. An excellent source of information is the Ontario Ministry of Economic Development and Trade's web site at www.ontariocanada.com. Following the link “Starting Your Own Business” will take you to information on this topic including Your Guide to Small Business and links to the Ministry’s Business Advisory Services. The Business Advisory Services may also be reached by telephone at 1-800-461-2287.

To bring your business idea to reality takes much study and planning. Detailed planning greatly improves your chances of success. Good luck.

A column of general information and opinion on legal topics by the lawyers of Rural Legal Services, Box 359, Sharbot Lake, ON, K0H2P0, 613-279-3252, or 1-888-777-8916. This column is not intended to provide legal advice. You should contact a lawyer to determine your legal rights and obligations.

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