5 legal documents to start your business

When setting up your business, you’ll create a sole proprietorship, a partnership, or a corporation. “Understanding the differences between the three and the legal documents you need for each will save you headaches in the future,” says Marina Mavridis, Managing Director of directLEGAL.ca, which provides direct and affordable online legal services to Canadian businesses.

A sole proprietorship is when you own and run the entire enterprise as an individual. A partnership is when multiple parties form an agreement to create a business together and share responsibilities. A corporation is an entirely separate entity from the shareholders and is a legal “person.” This means it files its own taxes, enters into its own contracts, and has its own accounts.

“As the idiom goes, the only thing you can be certain of in life is death and taxes,” says Mavridis. When setting up a business, getting a tax number is one of the first steps in making things official. You can register your business online and receive a business number. Usually this comes in the format XXXXXXXXXRC0001. A business number enables you to easily register for a GST/HST number and a variety of tax accounts, including payroll and import/export. Depending on the type of business you establish, you may only need a business number and GST/HST number. Small sole proprietors may not need either if they aren’t charging HST. As your business grows, however, you can end up very suddenly meeting the income threshold, and so early voluntary registration can protect you in the long run. Speak to a lawyer early on to clarify your unique needs and help protect yourself and your business.

Sole proprietors can run under their owner’s name. Partnerships, corporations, and sole proprietors who have chosen a name other than their own for their business must register their business name. This is sometimes called a DBA (“doing business as”) or a trade name. Registration is at the provincial level, and different rules and regulations apply to each province. For example, in Newfoundland and Labrador, neither sole proprietors nor partnerships register their businesses. “When setting up and registering your business name, a lawyer can help you to ensure that you are not accidentally infringing on someone else's intellectual property,” adds Mavridis. Not only is registering your business name a legal requirement, but you’ll also need proof of your trade name, such as the licence or certificate issued by the province, to set up a business bank account.

You don’t need incorporation documents if you’re a sole proprietor or a partnership. If you’re creating a corporation, though, there are three unique documents and processes required to set up your business. These are the certificate and articles of incorporation, the bylaws, and the minute book records. To apply as a corporation, submit your request to a provincial, territorial, or federal government Opens in a new window.. Each region requires different information, but all include: 

• Name of corporation
• Location of corporation’s registered office
• Name of incorporators
• Name of directors or the minimum and maximum number of directors
• Share structure of the corporation
• Restrictions on business or transfers of securities
• Any additional provisions

Once the application is approved, you’ll receive a Certificate of Incorporation that has the Articles of Incorporation attached. Depending on your jurisdiction, this may go by a different name, such as Articles of Association. Given that corporations function as legal people, consider this your corporation's birth certificate and treat it with the same importance you would treat your own. When opening a bank account, these documents are necessary, like they are with a business name registration.

Two other documents that are legally required are bylaws and minute book records. Bylaws lay out the rules and regulations of your corporation and the roles of all the officers and directors. They are a legal requirement that help keep everyone involved in the corporation on track. Bylaws also help avoid future conflict, as they aid in guiding future decisions. Most banks will want to review your bylaws to confirm that the board is authorized to borrow and lend money. 

Lastly are the minute book records. Think of the minute book as the recorded thoughts of the person that is your corporation. It will include meeting documents from the one required annual board and shareholders meeting or other meetings, plus other records important to your business, such as the directors, officers, and shareholders and the shares they hold. This book acts as evidence of what the corporation is thinking and why they made their decisions. Again, like so many other things, a bank often requires it when opening a corporate account.

A partnership agreement is a document that must be drafted by a lawyer. It is not technically a legal requirement — you can start a partnership with someone based on a verbal agreement or a simple handshake. But a partnership agreement is key in protecting you and your business, now and in the future. It outlines the expectations and roles within the partnership and everyone’s responsibilities. It also states who can act on behalf of the partnership, including the consequences of their actions, which are legally binding on all partners. “Starting a business can be incredibly exciting, and while no one wants to envision a future with conflict, it is reasonable to prepare for the worst while still expecting the best,” says Mavridis. 

A lawyer should draft your partnership agreement to ensure it’s legally binding and that nothing gets left out. Some things that are included in a partnership agreement are: 

• Who the partners are
• The role of each partner and their responsibilities
• Decision-making processes
• How profits and losses are divided
• Capital contributions
• How the partnership can be dissolved
• Steps for dispute resolution
• New partners and expulsion of partners
• Reporting and financial statements
• Non-competition and non-solicitation
• Restrictions on assignment of partnership interests
• Fees and costs of partnership