Starting your own business: The guide

Where to start when starting a business

Before you start any paperwork, validate your idea and business model, then make three key decisions: your legal structure, your tax regime, and how you’ll handle your accounting. These choices will determine your taxes, your personal liability, and your administrative processes for years to come. It’s best to get them right from day one.

1. Validate the Idea and Business Model : Market, pricing, potential early customers, preliminary forecasts.
2. Choosing a Legal Structure : sole proprietorship, partnership, or corporation.
3. Reserve and Register the Name, then Registering the Business (in Quebec, the Registraire des entreprises).
4. Get Your Business Numbers : business number (BN) from the CRA, tax, payroll, or import accounts as needed.
5. Register for GST/QST if you exceed the $30,000 threshold for four consecutive quarters.
6. Open a Business Bank Account separate from your personal finances.
7. Setting Up Bookkeeping : software, document organization, deadline calendar.

A common mistake is to do everything out of order: Incorporate before checking whether it makes sense from a tax perspective, or billing clients without having registered for tax purposes. Consulting an accountant early on saves you time and helps you avoid having to make retroactive corrections.

Which legal structure should you choose?

In Canada, there are three main business structures: sole proprietorship (self-employed), partnership, and corporation (incorporated business). The right choice depends on your risk tolerance, projected income, the number of partners, and your growth plans. Each structure has its own tax and legal implications.

• Sole Proprietorship: Unlimited liability (personal assets at risk), income reported on your personal tax return (T1/TP1), simple and low-cost startup.
• Partnerships: Unlimited and joint liability; shares distributed among partners; a partners' agreement is recommended.
• Corporation (incorporated): Limited liability to the amount of capital invested, separately taxed entity (T2/CO-17), more burdensome formalities, greater credibility with banks.

A sole proprietorship is often a good choice for startups: minimal paperwork and a quick setup process. The downside is unlimited liability: your personal assets are on the line for the business’s debts. A corporation creates a separate legal entity, protects your personal assets, and offers tax planning options, in exchange for more rigorous accounting requirements and recurring expenses.

Should you incorporate or remain Self-Employed?

Incorporating becomes a good option when your profits exceed what you need to live on, when your business faces the risk of litigation, or when you want to form a partnership or raise capital. Below that threshold, operating as a sole proprietorship remains simpler and less expensive. There is no universal threshold, it’s a decision that must be made on a case-by-case basis.

• Limited Liability: A company is a separate legal entity, which in principle protects your personal assets.
• Tax Deferral: Profits retained by the company are taxed at the corporate tax rate, which is often lower than your marginal personal tax rate.
• Flexible Compensation: salary, dividends, or a combination of both, based on a strategy optimized by your accountant.

But incorporation comes with costs and administrative burdens: incorporation fees, annual corporate filings (Form T2 and Form CO-17), financial statements, and updates to the corporate registry. If your income is modest or irregular, these costs may outweigh the tax savings. Rather than guessing, run the numbers with an accountant. Bankeo isn’t an accounting firm: get matched with an accountant who will model your situation for free.

Federal or provincial incorporation: Which one to choose

In Canada, you can incorporate under federal or provincial law (in Quebec, under the Corporation Act). Federal incorporation protects your business name nationwide and facilitates interprovincial operations. Provincial incorporation is often simpler if you operate in a single province. Both are subject to federal and provincial taxes.

• Federal Incorporation: Name protection throughout Canada, Canada-wide scope, federal incorporation plus registration in each province where the business operates, federal T2 form plus provincial tax returns.
• Provincial Incorporation (Quebec): Name protection within the province, province-specific registration, registration with the Registraire des entreprises, federal T2 form plus Quebec’s CO-17 form.

Important note: Even a federally incorporated company must register in every province where it operates, including Quebec. And regardless of the option chosen, every company pays federal income tax (T2) and provincial income tax where it has a place of business. An accountant or legal advisor can help you decide based on your growth plan.

Steps to incorporate your business

Incorporating a business involves a series of specific steps: choosing the jurisdiction (federal or provincial), reserving a name or opting for a registration number, drafting the articles of incorporation, appointing directors, paying the fees, and obtaining the certificate of incorporation. Next comes registration, obtaining tax identification numbers, and setting up accounting procedures.

1. Choosing the Type of Business Structure : federal or provincial, depending on your area of business.
2. Choosing a Name : distinctive name (with availability check) or numbered company.
3. Drafting the Articles of Incorporation : share capital, classes of stock, registered office.
4. Appointing Directors and create the minutes book.
5. Submit the application and pay the fees with the federal registry or the Registraire des entreprises.
6. Obtaining the Certificate of Incorporation, then register the company in each province where it operates.
7. Apply for a Business Number (BN) Registering with the CRA and opening accounts: GST/QST, source deductions, corporate income tax.
8. Open a Business Bank Account in the company’s name.
9. Setting Up Your Accounting System : chart of accounts, software, filing schedule.

A common mistake when starting a business is to take the structure of the share capital too lightly. An improper allocation of shares can later complicate income splitting, bringing in a partner, or selling the business. This is when the advice of an accountant, and sometimes a tax specialist, pays for itself.

GST/QST/Taxes: When to register

In Canada, you must register for the GST (5%), and in Quebec, for the QST (9.975%), as soon as your taxable income reaches $30,000 over four consecutive calendar quarters. Below this threshold, registration is optional but often beneficial for recovering taxes paid on your purchases. Once registered, you collect the taxes, report them, and remit the balance.

• The $30,000 Threshold is calculated over four consecutive quarters, not by calendar year.
• Voluntary Registration If your revenue is below the threshold, you can claim the ITC and ITR, which means you can recover the GST/QST paid on your expenses.
• You collect and then remit : You charge sales tax, deduct the tax paid on your purchases, and remit the difference.
• Set aside money for taxes : The money collected in taxes is not your income.

Many entrepreneurs overlook tax instalments and the mechanics of tax refunds, only to end up with a balance and interest charges. An accountant will set up your registration, payment schedule, and follow-up so that everything runs smoothly.

Accounting requirements for a new business

From the very start, a business must maintain accurate records, keep supporting documents, file tax returns, and meet the deadlines set by the CRA and Revenu Québec. An incorporated company has additional obligations: filing a corporate return (T2/CO-17), preparing financial statements, and updating its registration.

• Bookkeeping: Record all transactions, ideally using software, and reconcile your accounts regularly.
• Keeping Records: Keep invoices, receipts, and supporting documents for at least six years.
• Tax Filings: File and pay your GST/QST according to your filing schedule.
• Tax Returns: T1/TP1 for a self-employed individual, T2/CO-17 for a corporation.
• Tax Instalments: if your taxes exceed the thresholds.
• Payroll and source deductions: If you hire employees, open a payroll tax account and make payments according to the schedule.

The golden rule: Keep your personal finances separate from your business finances from the very first dollar. Separate bank account, separate card, and clearly categorized expenses.

When to hire an accountant when starting a business

The best time to consult an accountant is before you incorporate, not after. They can help you choose the right legal structure, calculate the benefits of incorporation, structure your share capital, register for taxes correctly, and set up proper bookkeeping. With the right guidance from the start, you’ll avoid costly mistakes that would be difficult to correct later on.

• Before Incorporation, to validate the structure and model the actual tax savings.
• When Structuring the Share Capital, to keep your options open for expansion and growth.
• Tax Registration, to choose the right frequency and treatment.
• Setting Up Your Accounting System, to get started with the right software and chart of accounts.

Bankeo isn’t an accounting firm: we connect you, for free, with vetted accountants from our network who are suited to your situation and your industry. You describe your project to us, we introduce you to the right match, as many accountants as it takes to find the one that’s right for you, and you choose. And we’re always here to support you: if the relationship no longer works out, even after six months, we’ll find you another one at no cost. Our network includes more than 1,500 accountants, and we’ve received over 15,000 requests since 2023, with a rating of 4.7/5 based on more than 180 Google reviews.

How much does it cost to start a business in Canada?

The cost depends on your business structure. A sole proprietorship requires only modest registration fees. Incorporating adds formation fees, sometimes a name search, and professional fees if you hire someone to assist with the process. An accountant will provide you with a detailed breakdown of the total cost based on your specific situation, with no surprises.

Should you incorporate your business right from the start?

Not necessarily. Incorporating becomes advantageous when your profits exceed your personal needs, when your business involves risk, or when you want to bring in partners or finance growth. Under these conditions, a sole proprietorship remains the simpler option. An accountant can calculate the break-even point for your situation.

When should I register for the GST and QST?

As soon as your taxable income reaches $30,000 over four consecutive calendar quarters, registration becomes mandatory in Canada and Quebec. The GST is 5% and the QST is 9.975%. Below this threshold, registration is optional but often useful for claiming back the GST/QST paid on your business purchases.

What is the difference between federal and provincial incorporation?

Federal incorporation protects your business name across Canada and facilitates interprovincial operations, but requires you to register in each province where you do business. Provincial incorporation, in Quebec through the Registraire des entreprises, is often sufficient if you operate locally. Both types of incorporation are subject to federal and provincial taxes.

Do I need an accountant to start my business?

It’s not mandatory, but it’s highly recommended before you incorporate or register for taxes. An accountant helps you avoid costly structural errors and establishes a solid accounting foundation. With Bankeo, get matched with a vetted accountant for free, usually within 48 hours.

How long does it take to incorporate a business?

The incorporation process itself can be quick, often just a few days once the articles of incorporation are ready. What takes time is thorough preparation beforehand: choosing the legal form, structuring the share capital, and selecting a name. Professional guidance speeds up the process and helps avoid having to redo steps.