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Starting a Small Business? Read This First

If you’re looking to start a small business, congratulations! Small businesses are a major force in Canada’s economy – the latest statistics show that they make up nearly 98% of Canadian employers, and employ just over two-thirds of the country’s labour force. Small and medium enterprises are also the largest contributor to Canada’s GDP. 

Small businesses are also an important force in our local economy, whether you’re starting on your own or quickly looking to build a team. The possibilities for growth are endless, but just like building a house, it’s important to have a solid foundation.

You have the idea in mind, the workings of a business plan, and a determined will to succeed. Along with those core elements, here are five examples of the key legal documents that you can look to put in place to be sure your business starts on the right footing. 

Business Name Registration

There’s nothing better than a great name for a business! If you have something kitschy or memorable or punny, you’re probably already telling friends or using it to create your marketing outreach. That’s all well and good, but make sure that you’re taking steps to protect that name so that you can use it properly. 

Ontario’s Business Names Registration Act requires business owners to register any name they are using if it is not the name of themselves or their partners. You can even register a business name as a sole proprietor. In our firm’s case, for example, Pavey Law was named after our founders, but if we were to change the name of the firm, we would need to register that new name in order to continue to operate our business. 

Partnership Agreement


If you are going into business with a friend or colleague, success early on can benefit both of you tremendously. Yet there will unquestionably be challenges along the way – and the two of you may disagree on how to handle those challenges. Some relationships weather these storms, and others simply do not.

A partnership agreement spells everything out on paper. It includes each partner’s roles, responsibilities, what each of the partners has invested into the business, and lays out a framework for how business decisions will be made. It also dictates how profits will be divided, and how disputes will be handled. Lastly, if the relationship does ultimately break down, a partnership agreement will include terms about how the partnership can be dissolved.

Incorporation 

If you are operating your new business as a sole proprietor, you may not worry about incorporation until your business reaches a certain level of revenue. Yet if you are looking to start out with a small team, rent a commercial space, or purchase a large amount of inventory, , it may be wise to incorporate early on. 

Incorporation means that the company becomes its own legal person, and that the business has a set of rules and guidelines to follow. Incorporating your business can help divide ownership amongst shareholders, while creating a formal set of directors and officers who are tasked with running the corporation. These may sound like formalities for 5 employees or less, but can be essential for business growth and scaling if business begins to take off. 

Amongst the owners of the business, a shareholders agreement can spell out how profits of the business will be distributed, as well as what happens if a shareholder wishes to sell their shares and exit the business. It can also include language about how disputes will be handled in the management of the business, such as a clause that requires arbitration as a first resort. 

If you plan to incorporate your business, there are legal requirements in order to stay compliant in each year of operation. Your business lawyer can help with required tasks such as updating your corporate minute books, and any corporate resolutions required to make changes to the business.  

Non-Disclosure Agreement

If your business is premised on a unique product or idea, one of your earliest concerns is likely someone coming in and stealing your intellectual property. You may be working towards a patent, but if the patent process is moving slowly, or your idea is not patentable, you can always implement a non-disclosure agreement. 

A non-disclosure agreement (or “NDA”) helps ensure that no one uses your idea to their own advantage or for an improper purpose. NDAs are especially useful if you are hiring employees or using independent contractors in the early growth stages of the business, where such persons will be among the first to have access to your unique creation or idea. NDAs can also help protect you during meetings with potential early partners or investors.

Not all NDAs are the same, and the language must be precise to be effective. A proper NDA should detail exactly what is covered under the agreement, the terms under which that information can be used, and the penalties for any breach. This can be one of the most efficient ways to stop your trade secrets from going public. 

Employment vs. Independent Contractor Agreements 

If you ask someone to perform services for your business in exchange for money, and there is no agreement on paper – congratulations, you have, in the eyes of the law, your first employee. All employees of a business have rights and entitlements, whether or not anything is in fact in writing. However, putting the terms of your agreement in writing is what can ultimately help safeguard your business. 

An employment contract details the terms of the working relationship to give both the employer and the employee certainty. Without a written contract, the Employment Standards Act will dictate the majority of the working relationship.  It is important for business owners to seek advice from an employment lawyer since no employment contract can offer less than the minimum legal standards as set out in the Employment Standards Act. However, the Employment Standards Act does NOT limit what an employee is owed upon termination without notice – only a well-drafted written employment agreement can put those limits in place.

Lastly, if you are looking to hire an independent contractor to perform services for your business, then a carefully-written independent contractor agreement should be in place in order to prevent the assumption of an employment relationship. A person is not simply assumed to be an independent contractor; these are contracts between two businesses and need to be written as such in order to prevent accidentally hiring an unexpected employee. 

Final Thoughts

This list is by no means exhaustive. There are numerous other key documents that are important depending on the nature of the business that you plan on running, including licences and permits, trade agreements and vendor agreements, a commercial lease for a retail space, insurance coverage, etc. 

Our firm has been advising small businesses in the Cambridge, Kitchener, and Waterloo region for decades. We sit down with our clients to review their plans and help them fill in the gaps that they may be missing. Legal advice is important for avoiding disputes, but it can also be crucial to ensuring that the business starts out on a solid foundation and is built to last. Contact us today to set up a consultation.