If you’re interested in starting a business in BC you’ve come to the right place. Living, investing and building a business in BC can be a challenging but very rewarding experience.
The steps to starting a business can vary but I’ll outline some basis steps and considerations when starting a business.
What type of business structure do you need and which should you choose?
A sole proprietorship is the most common, simple and least expensive business structures you can organize. Essential you, as the individual is considered the operator of the business.
Although you can choose a business name to operate under you’ll be operating your business as an individual as opposed to a partnership or corporation.
No income tax deferral is available and 100% your net profits will be reportable on your T1 income tax return each year. In addition, unlike incorporated businesses you do not have limited liability, although obtaining good insurance is always advisable.
A partnership is similar in many respects to operating a sole proprietorship however it is comprised of at least 2 partners. A proper partnership agreement is always advisable to ensure all parties understand their respective responsibilities and the overall structure of the new business.
No income tax deferral is available and all the partners must report net profits of the business each year on their personal income tax returns.
Care must be taken to ensure proper income tax adjustments are made to the partnership figures before allocating net income figures to each respective partner.
Incorporated business structures can allow for much more flexibility and added income tax and liability protection than partnership or sole proprietorships.
Corporations are considered separate entities to the shareholders. Corporations are also taxed separately and have their own specific tax rules.
Some of the main advantages and disadvantages of incorporated businesses are as follows:
- Ability to defer income tax to future years to the extent the shareholders do not withdraw income from the corporation
- Ability to reinvest earning of the corporation as much lower rates than Federal and Provincial personal tax rates
- Ability to income split between other shareholders and spouses
- Potential large tax free capital gain on the future sale of shares
- Much more expensive and time consuming to prepare tax returns and bookkeeping records
- No ability to flow out losses from the corporation
Once a business structure is chosen (click here for more information on incorporating in BC) you can start to build your new business.
Building the business can be exciting, but be sure to properly organize your affair so you don’t miss important structural and tax responsibilities. Some common items to consider:
- make sure to open up a business bank account as soon as possible. Running business expenses through your personal account can lead to complications when preparing your accounting records.
- You may have Provincial Sale Tax issues to review. Many good and services attract PST and if you’re required to collect PST you’ll need to prepare and file respective PST returns. To view BC PST rules click here.
- If most cases you won’t need to register for BC GST until you exceed $30,000 in sales or revenue. However you may choose to voluntarily register for GST in order to gain access to GST ITC (rebates of GST you pay on expenses). For more information on BC GST click here.
- It’s always a good idea to engage a competent BC lawyer and/or accountant before you get started operating your business. You’ll likely need a lawyer to help you incorporate your business and it’s always a great idea to sit down with a good CPA to ensure you’re not missing any accounting or tax issues.
- Make sure to also have a solid marketing and strategic growth plan in place. It’s a big mistake to think just because you’ve opened your doors for business that people will start flocking to you. The environment is always much more competitive than you anticipate.
- Not all business requires this, but you should always check to ensure you have all appropriate licenses and permits to carry on your business activities.
Starting a business can both an exciting and overwhelming process. However with proper professional guidance and a solid business plan you’ll increase your odds of success.