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You can buy either the shares of a business or the assets. Buying the assets is usually less risky. Both options have pros and cons. You should discuss the options with a lawyer and an accountant. | You can buy either the shares of a business or the assets. Buying the assets is usually less risky. Both options have pros and cons. You should discuss the options with a lawyer and an accountant. | ||
The advantages of buying a business include loyal customers, trained employees, reliable suppliers, and fully equipped premises. Sometimes the seller will stay on for a while until you learn the business. | The advantages of buying a business include loyal customers (an existing brand and goodwill), trained employees, reliable suppliers, and fully equipped premises. Sometimes the seller will stay on for a while until you learn the business. | ||
But you pay for these benefits—buying a business usually costs more. Be careful that you get what you have been promised and are paying for, without any hidden liabilities. Investigate the business and its assets. Start early because this | But you pay for these benefits—buying a business usually costs more than the alternatives. Be careful that you get what you have been promised and are paying for, without any hidden liabilities. Investigate the business and its assets to ensure there are no liens or third-party claims on the business or its assets. Ensure the assets are in good working order. Start early because this due-diligence process takes time to complete and you need to verify these things before you finalize the deal. | ||
You might want the seller to sign an agreement promising not to compete with you, recruit your key employees, or use confidential information about your business. | You might want the seller to sign an agreement promising not to compete with you, recruit your key employees, or use confidential information about your business. | ||
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==Start a new business== | ==Start a new business== | ||
There are pros and cons to starting a new business. It’s usually less expensive than buying a franchise or existing business. But on the other hand, you don’t get any support from a seller or franchisor. So you start with no customers, and you | There are pros and cons to starting a new business. It’s usually less expensive than buying a franchise or existing business. But on the other hand, you don’t get any support from a seller or franchisor. So you start with no customers, and you may lose money while starting up. | ||
If you start from scratch, you must decide what form of business to use: | If you start from scratch, you must decide what form of business to use: | ||
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* You have unlimited personal liability for the debts of the business, so if the business fails, you may risk losing your personal assets, such as your house and car. | * You have unlimited personal liability for the debts of the business, so if the business fails, you may risk losing your personal assets, such as your house and car. | ||
If the business makes money, it will be taxed as your personal income—you don't get the benefit of the lower, small-business tax rate. On the other hand, as many businesses don’t make money in the first few years, you’ll have tax deductions you can use personally. A good rule of thumb is to save a percentage equal to your potential taxes so that you don’t have a large tax bill at the end of the year. | If the business makes money, it will be taxed as your personal income—you don't get the benefit of the lower, small-business tax rate. On the other hand, as many businesses don’t make money in the first few years, you’ll have tax deductions you can use personally. A good rule of thumb is to save a percentage equal to your potential taxes so that you don’t have a large tax bill at the end of the year. If you start with a sole proprietorship and things go well, you can always incorporate a company later and transfer the business to the company. Then you get the benefits of carrying on a business through a company instead of personally. This is called a “roll-over” in tax language. | ||
==Partnership== | ==Partnership== | ||
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==Incorporated company== | ==Incorporated company== | ||
A company is a separate legal entity from its owners. A company is liable for its own debts, owns its own property, and can sue or be sued. Its owners, called shareholders, enjoy limited liability. This means that their personal assets are generally not at risk and they are not personally liable for the company’s debts. | A company is a separate legal entity from its owners. A company is liable for its own debts, owns its own property, and can sue or be sued. Its owners, called shareholders, enjoy limited liability. This means that their personal assets are generally not at risk and they are not personally liable for the company’s debts. They risk losing only their initial investment to buy shares and any shareholder loans they made to the company. | ||
But sometimes this isn't as good as it sounds. Lenders often insist that shareholders of small companies personally guarantee the company's debts, so the lender is sure of getting repaid even if the company can't pay. And in some cases, a shareholder may be personally liable for a company's debts. You should have a shareholder’s agreement. | But sometimes this isn't as good as it sounds. Lenders often insist that shareholders of small companies personally guarantee the company's debts, so the lender is sure of getting repaid even if the company can't pay. And in some cases, a shareholder may be personally liable for a company's debts. Shareholders are not required to provide any work or services for the company unless there’s a contract requiring them to. You should have a shareholder’s agreement to deal with these topics. A lawyer can help with that. | ||
If you incorporate, you must use the words “incorporation,” “limited” or “corporation” (or Inc., Ltd., or Corp.) after the company name. | If you incorporate, you must use the words “incorporation,” “limited” or “corporation” (or Inc., Ltd., or Corp.) after the company name. | ||
You can incorporate federally or provincially. If you’re going to do most of your business in BC, you should incorporate in BC, as it’s much easier in the long run. Companies that incorporate federally must register extra-provincially in each province they do business in. | |||
A company files its own separate tax return and pays its own tax. Shareholders pay tax on what they receive in dividends, bonuses or salary from the company. Depending on your personal income level, you might be able to save tax by incorporating. | A company files its own separate tax return and pays its own tax. Shareholders pay tax on what they receive in dividends, bonuses or salary from the company. Depending on your personal income level, you might be able to save tax by incorporating. | ||
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==You’ll need a business licence and name approval== | ==You’ll need a business licence and name approval== | ||
Whatever form of new business you choose—sole proprietorship, partnership or company—you’ll need to get a business | Whatever form of new business you choose—sole proprietorship, partnership or company—you’ll need to get a business licence and name approval. You get a business licence from your town or city hall, and the cost will vary depending on the type of business and whether it's operated from commercial or residential premises. You can get the name approval from the provincial government. Many banks won’t give you financing until you have a business licence and name approval. | ||
==Other government regulations and requirements may apply== | ==Other government regulations and requirements may apply== | ||
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* '''Employee rules''': If you have employees, you’ll have to set up accounts with the Canada Revenue Agency (CRA) for withholding taxes, Canada Pension Plan (CPP) deductions, and Employment Insurance (EI) premiums. You may also have to set up accounts for GST and Provincial Sales Tax payments and Workers Compensation payments. | * '''Employee rules''': If you have employees, you’ll have to set up accounts with the Canada Revenue Agency (CRA) for withholding taxes, Canada Pension Plan (CPP) deductions, and Employment Insurance (EI) premiums. You may also have to set up accounts for GST and Provincial Sales Tax payments and Workers Compensation payments. | ||
* '''Zoning and bylaws''': Do you know where | * '''Zoning and bylaws''': Do you know where your business will be located? Some types of business can't be operated in certain areas because of zoning by-laws. If you're planning to run your business from home, check the by-laws at your local city hall, and if you live in a condominium, look at the strata corporation by-laws. As for commercial premises, just because someone is willing to sell or rent space to you doesn't mean that the property meets all zoning requirements for the business you have in mind. Check this out yourself at your town or city hall before you sign a lease. | ||
* '''Building permits''': If you're going to renovate the premises, you'll need a building permit. If you're renting commercial space, you'll probably have to pay at least a share of all municipal taxes on the premises, including a business tax, over and above your rent. Get your lawyer to review your lease agreements before signing them. | * '''Building permits''': If you're going to renovate the premises, you'll need a building permit. If you're renting commercial space, you'll probably have to pay at least a share of all municipal taxes on the premises, including a business tax, over and above your rent. Get your lawyer to review your lease agreements before signing them. | ||
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* '''Other regulations''': Depending on the business, regulations may apply to your product or service. For example, some products have labeling requirements and door-to-door sales are regulated. | * '''Other regulations''': Depending on the business, regulations may apply to your product or service. For example, some products have labeling requirements and door-to-door sales are regulated. | ||
* '''Consents from third parties''': When buying the assets or shares of a business, the purchase may require third-party consent and approval. For example, if the business operates from leased premises, the landlord will need to agree to the sale and transfer (assignment) of the existing lease to a new lease with the new owner. | * '''Consents from third parties''': When buying the assets or shares of a business, the purchase may require third-party consent and approval. For example, if the business operates from leased premises, the landlord will need to agree to the sale and transfer (assignment) of the existing lease to a new lease with the new owner. The buyer and seller of the business should not assume the landlord will automatically agree. | ||
==More information== | ==More information== | ||
* [http://www.smallbusinessbc.ca/ Small Business BC] has information and guides on starting a business. Call 604.775.5525 in Vancouver or 1.800.667.2272 elsewhere in the province. | * [http://www.smallbusinessbc.ca/ Small Business BC] has information and guides on starting a business. Call 604.775.5525 in Vancouver or 1.800.667.2272 elsewhere in the province. | ||
* | * [http://www.ic.gc.ca/eic/site/icgc.nsf/eng/home Innovation, Science and Economic Development Canada] has information and guides on starting a business, incorporating a federal company, patents, taxes, and so on. | ||
* Check the provincial [http://www.bcbusinessregistry.ca/ OneStop Business Registry website] which lets you apply for various business licences and registrations at one time. It also refers you to “kiosks” where you can get a real person to help you. The OneStop Help Desk number is 250.370.0332 in Victoria or 1.877.822.6727 elsewhere in BC. | * Check the provincial [http://www.bcbusinessregistry.ca/ OneStop Business Registry website] which lets you apply for various business licences and registrations at one time. It also refers you to “kiosks” where you can get a real person to help you. The OneStop Help Desk number is 250.370.0332 in Victoria or 1.877.822.6727 elsewhere in BC. | ||
* For more information on incorporating a BC company, check the BC [http://www.bcregistryservices.gov.bc.ca/bcreg/corppg/index.page Corporate Registry website]. | * For more information on incorporating a BC company, check the BC [http://www.bcregistryservices.gov.bc.ca/bcreg/corppg/index.page Corporate Registry website]. | ||
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[updated | [updated July 2018] | ||
'''The above was last reviewed for accuracy by | '''The above was last reviewed for accuracy by Oliver Hamilton and edited by John Blois.''' | ||
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