1. Lecturer: Aaron Grinhaus, LL.B., J.D. January 25, 2013 Enactus at University of Toronto Basic Legal Considerations for Starting a Business in Ontario

2. In the Beginning... 1) Making sure you can operate legally 1) Making sure you can operate legally 2) Knowing you have cash flow 2) Knowing you have cash flow 3) Keeping costs low and profit high 3) Keeping costs low and profit high * Not-for-Profit and Charitable will not be covered in this lecture * Not-for-Profit and Charitable will not be covered in this lecture

3. Basic Legal Considerations: Overview 1) Business vehicles to choose from 1) Business vehicles to choose from 2) Liability and protection 2) Liability and protection 3) Guaranties 3) Guaranties 4) Regulated Industries 4) Regulated Industries

4. Basic Legal Considerations: Overview Depending on industry, what will your business will require? Depending on industry, what will your business will require? Are you in a regulated industry? Are you in a regulated industry? Contracts: Service agreements, non- disclosure agreements, confidentiality agreements, contracting agreements Contracts: Service agreements, non- disclosure agreements, confidentiality agreements, contracting agreements –Will help you get paid and clarify the parties' obligations

5. Basic Legal Considerations: Overview Websites: Copyright, terms of use, privacy policy Websites: Copyright, terms of use, privacy policy Advertising and Marketing: Originality Advertising and Marketing: Originality Protecting your Products (Intellectual Property) Protecting your Products (Intellectual Property) –Patent –Copyright –Trademark

6. Business Vehicles What are your options? What are your options? –Corporation –Sole Proprietorship –Partnership –Joint venture What are the differences? What are the differences?

7. Business Vehicles: Sole Proprietorships Business Names Act, RSO 1990, c B.17 Business Names Act, RSO 1990, c B.17 Very simple: business name and Master Business License Very simple: business name and Master Business License Advantages: inexpensive to set up; all control and profits are yours; deductibility of losses Advantages: inexpensive to set up; all control and profits are yours; deductibility of losses Disadvantages: personally liable for all debts; taxed at individual rate (higher than corporate rate); business relies entirely on one person Disadvantages: personally liable for all debts; taxed at individual rate (higher than corporate rate); business relies entirely on one person

8. Business Vehicles: Partnerships Partnerships Act, R.S.O. 1990, c. P.5 Partnerships Act, R.S.O. 1990, c. P.5 –General Partnerships –Limited Liability Partnerships Limited Partnerships Act, R.S.O. 1990, c. L.16 Limited Partnerships Act, R.S.O. 1990, c. L.16

9. Business Vehicles: Partnerships Advantages: Advantages: –Cost sharing; easy to start (little required other than registration of name and partner names, can be done online); inexpensive; partnership agreement very flexible; loss and profit sharing

10. Business Vehicles: Partnerships Disadvantages: Disadvantages: –Partners personally liable for debts of company (LP and LLP have limitations on this) –Hard to find good partners –Tax liability for partners can be high; taxed at individual rate –No protection from commercial or other legal liability

11. Business Vehicles: Corporations Corporations: Business Corporations Act, RSO 1990, c B.16 Advantages Advantages –Separate legal entity (Limited liability) –Lives forever until dissolved –Can divide Equity –Share Capital is Transferrable –Shareholder Agreements –Low tax rate; QSBC\CCPC is %15

12. Business Vehicles: Corporations Disadvantages Disadvantages –Heavily regulated –Expensive to set up and maintain  Onerous record and documentation requirements –Separate tax return –"Piercing the Corporate Veil" (e.g. Director and Officer Liability) –Residency requirements of directors –Without Shareholder Agreement, conflict can arise  Oppression; litigation

13. Legal Considerations When Setting Up a Business Federal\Provincial incorporation Federal\Provincial incorporation Liability: commercial and otherwise Liability: commercial and otherwise Ongoing costs in administering Ongoing costs in administering Local, provincial and federal regulations Local, provincial and federal regulations Tax Tax

14. Legal Considerations When Setting Up a Business What do you need protection from? What do you need protection from? –Contracts –Law suits –Debt What types of risks are you exposing yourself to? What types of risks are you exposing yourself to? –Professional liability –Injury –Commercial Disputes

15. Tax Considerations – Legal Perspective What taxes will you be liable for? What taxes will you be liable for? –Excise Tax (HST)  Charged on most goods and services unless exempt  Excise Tax Act, RSC 1985, c E-15 –Income Tax  Capital vs. Current Income  Income Tax Act, RSC 1985, c 1 (5th Supp)

16. Tax Considerations – Legal Perspective Tax collection and remittance – Obligation of Business Tax collection and remittance – Obligation of Business Crown Trust Money: Personal Liability of Proprietors and Directors Crown Trust Money: Personal Liability of Proprietors and Directors –Source deductions from payroll –HST from customers

17. Tax Considerations – Legal Perspective Minimizing your tax liability: Structuring Minimizing your tax liability: Structuring –Depending on business vehicle can structure in different ways to reduce tax liability –Income Splitting: Family members\trusted individuals\Partners –Tax deferral: “Rollovers” –Tax minimization: Deductions –Capital Gains Exemption (Sale) –Trusts

18. Planning for an Exit Debt Debt Retirement Retirement Sale Sale Succession Succession

19. Planning for an Exit Debt – Bankruptcy Debt – Bankruptcy –Are you personally liable to bank, outstanding tax Retirement Retirement –With debt: handing “keys to the bank” Sale Sale –Corporate or partnership\sole prop interest? –Share sale or asset sale Succession Succession –Handing over to family members; structure is key

20. I WISH YOU SUCCESS! THANK YOU QUESTIONS? QUESTIONS? Contact info: Contact info:aaron@grinhaus.cawww.grinhaus.ca