˴Ƭ Vice-Principal ResearchFor many people with little or no previous business or entrepreneurial experience, understanding the relationship between law and business – and how it may affect the success or failure of their business idea – is a very important step. In this series of Playbooks, we seek to provide general information on the legal concepts that should be considered by the entrepreneur starting out their business venture.
This first document contains all of the playbooks consolidated into one file:
When starting your business, one of the biggest decisions you will face is choosing an appropriate business vehicle. This decision may have a long-lasting effect on your business: how profits are shared, how much you pay in taxes, the amount of paperwork you will have to deal with each year, your personal liability as a business owner, and your ability to raise additional capital to expand your business.
This playbook outlines the considerations that every business owner should bear in mind when deciding on the appropriate business structure.
Choosing the Appropriate Business Vehicle for Your Business Idea (PDF, 727.5 KB)
A sole proprietorship is an unincorporated business formed by an individual who has chosen to produce goods or offer services to the general public, in exchange for money, and with a view to make a profit. There are no formalities involved in the creation of a sole proprietorship, making it one of the easiest and simplest forms of carrying on business in Ontario and Canada. All that is required of the business owner is to register a trade name, obtain a tax number, and open a bank account.
Many small businesses are faced with the decision of whether to incorporate at the outset, or whether to start operations as a sole proprietorship or a partnership and incorporate later. This playbook examines some of the factors to be considered when making the decision of whether or not to carry out business as a sole proprietor.
Partnerships are a relationship between two or more persons carrying on a business with a view to profit. Partnerships can arise explicitly (with a partnership agreement) or implicitly (by fulfilling the definition of a partnership above). In Ontario, partnerships are governed by the Partnerships Act (“PA”). In general, receiving a share of the profits in the business, without evidence to the contrary, will serve as proof that the person is a partner on the business.
A general discussion of these two categories of partners is set out in this playbook.
Partnerships - General, Limited, and Limited Liability Partnerships (PDF, 566.5 KB)
For the purposes of this Playbook, we will only be discussing the “for-profit” version of a corporation, but the vehicle is available for other business models. Other forms of corporations will have their own unique challenges. For other forms of corporations, please refer to the corresponding Playbook for non-profit or charitable corporations.
Corporations have six key features that distinguish the business vehicle from all others. Each of the features and their implications will be discussed in this playbook.
For the purposes of this Playbook, we will only be discussing not-for-profit (NFP) corporations. Other forms of corporations will have their own unique features.
An NFP corporation is a corporation without share capital that carries on activities without net profit. These activities include almost every type of voluntary association, church, trade, professional association, and advocacy organization. An NFP corporation may not be operated for the gain of its members, directors, or officers.
This playbook discusses the incorporation of NFPs.
Incorporating a Not-For-Profit (NFP) Corporation (PDF, 553.2 KB)
There are three forms that a registered charity can take: (1) a charitable organization, (2) a private foundation, or (3) a public foundation. The form the registered charity takes is dependent upon the structure, mode of operation, and sources of funding.
This playbook will discuss the types of registered charities and the considerations that should be taken with each.
A Non-Profit Organization (NPO) is defined by the Income Tax Act as a club, society, or association that is not a charity and that is organized and operated solely for:
- Social welfare (social, recreational, or hobby groups – e.g. golf clubs),
- Civic improvement (some amateur sports organizations – e.g. local hockey leagues),
- Pleasure or recreation (some festival organizations – e.g. parades and seasonal celebrations), or
- Any other purpose except profit.
What is important to qualify as a NPO is that no part of its income can be made payable to or available for anyone’s personal benefit.
These types of organizations can be very informal and are very common. More information about NPO corporations can be found in this playbook.
Social enterprises are a “hybrid” business model that falls between charities, not-for-profit corporations, and business corporations.
Given their community objectives, social enterprises are accountable to a broader range of stakeholders than ordinary corporations are. Democratic decision-making is a key feature in many social enterprises, as it intends to engage various stakeholders in shaping the strategic direction of the enterprise.
Details about social enterprises are outlined in this playbook.