What Do You Need to Start a Small Business?
What do you need to start a small business? There is a short list of elements that would be familiar to most entrepreneurs. First, it takes an idea. Whether you’re launching a product or a service, you have an idea about how to do something differently than your competitors, or bring something new to the market, and that idea is at the core of starting your new small business.
Beyond just an idea, starting a small business takes a lot of drive and determination to get that idea off the ground. Entrepreneurs understand the importance of the hustle, and are driven to put the work in to get their business properly off the ground. Many work all hours, often while juggling other employment, just to get a solid foundation in place.
If you think of your business like putting up a house or a building, think of building that on a solid legal foundation. There are key documents that any business should have – including contracts and policies – that will help protect that business as it continues to grow.
Here are some of the key documents that any small business owner should consider having in place as they get their business off the ground:
Business Name Registration
If the first thing that you’ve thought of is a brilliant name for your business, great! The next step is to get it properly registered through the Ontario Business Registry. Registering a business name in Ontario is fairly straightforward, and it does not mean that you need to incorporate. You can register your business name even if you are running as a sole proprietor.
If your business has employees, facilities, or offices in Ontario then you need to register your business name. The Business Names Act in Ontario requires that no corporation, individual, or partnership can carry on business under a name other than their own name (or just the names of the partners/corporate name) unless the name is registered.
Not every business needs to incorporate on day one. If you are a sole proprietor (or solopreneur) offering a service online and working out of your home, for example, you may not need to incorporate right away. Yet if you plan on growing your business to a certain size, or if you’ll be taking on multiple partners or holding significant assets, it may be wise to incorporate early.
Think of incorporation as setting out the rule book for your business. Incorporation involves a series of formal documents that set up the structure of your company, including who will be the directors, the officers, and the shareholders. A corporation is set up in terms of shares, and these documents determine who owns what shares in the corporation and how profits will be dispersed.
There are legal requirements to maintain a corporation, including specific documents that need to be maintained and filed, such as annual resolutions of the corporation. Much like a partnership agreement, incorporation documents can also spell out how disputes will be resolved, or what happens if one of the founders wishes to leave the corporation.
If you plan on starting your business with a partner, then a partnership agreement will benefit both of you. Your partner may be a family member, a best friend, or even a colleague, and you’re likely starting with an equal amount of excitement and enthusiasm. A partnership agreement is what protects the heart of the business in case anything happens between you and your partner.
A partnership agreement is a formal document that spells out who the partners are, what their responsibilities are in the business, how decisions are made, what each partner has put into the business, how profits will be divided, how disputes will be settled, and what happens when one partner wants to leave the business or wants the other to leave the business.
Much like a marriage, it’s hard to think about things ending badly when everyone is so positive and excited at the beginning. Yet, like a marriage, the right paperwork can help build that solid foundation. That way, if things do end badly between partners, the business that you’ve both worked to build can be protected.
The terms of service outline the grounds on which someone can use your website. They can explain the purpose of the information on the website, and how whatever is written for the public does not replace any professional or expert advice that they may get from hiring you. It can also prohibit anyone from posting illegal or prohibited content on your website, or from copying your website directly for someone else’s own use.
Believe it or not, any employee who works for you in exchange for money is under an employment contract – even if that contract is unwritten. An unwritten contract usually works to the employee’s benefit, as there is no cap on what that employee may be owed if you choose to end their employment.
Instead, an employment contract helps provide your business with a sense of security when it comes to employees. You can clearly outline the terms of the working relationship, and the expectations that you have from employees and that they can have from you. When written carefully, an employment contract can also help limit whatever obligations you do have to pay an employee if you end their employment.
If your business is founded on a great idea or an innovative product, your biggest concern is someone stealing your idea and ripping off your business.Telling someone about your unique idea in the early days feels like letting them in on an insider secret, especially if you’re trusting them not to steal your idea and market it for themselves.
A non-disclosure agreement (also known as an “NDA”) can protect your idea from piracy, and serve as a legal way to ensure that no one steals or publicizes your idea. These agreements need to be written very carefully to confirm exactly what is covered by the scope of the NDA, what is not covered, how long it lasts, and what penalties may be in place for breaking the agreement.
NDAs are common as you start to bring people into your business, including external consultants, initial employees, or even potential partners. These agreements should be practical and reasonable – they cannot prevent people from sharing already public information, but they can help secure your true trade secrets.
Licenses and Permits
Even if we think of licenses and permits as a bureaucratic headache, they are extremely important in making sure that your business is running properly. Depending on the nature of your business and where you are running your business, you may need:
- A general or municipal business license
- A zoning permit to operate our business
- Criminal records or judicial matters checks
- Professional licenses
- Health and safety permits
- Signage permits
There may even be further license issues depending on what you are looking to do. This list also does not cover the insurance your business will need, such as commercial general liability, errors and omissions, property insurance, or other coverage that you may require.
This list is not exhaustive, and may sound overwhelming, but help is available! A small business lawyer can help guide you through the process step by step, draft key documents, and ensure that you are off on the right start. Contact Lamers Law today to set up a consultation.