Starting a business is one of the most common ways people build financial independence in Canada, and the Greater Toronto Area has one of the highest concentrations of small business ownership in the country. Many newcomers to Canada, in particular, see business ownership as a faster and more controllable path to financial stability than navigating the credential-recognition challenges of professional employment. Across the GTA’s many language communities, entrepreneurship has historically been one of the clearest paths from arrival to financial security.
The legal decisions you make at the start of a business have consequences that compound for years. Choosing the wrong business structure, skipping a shareholder agreement, hiring your first employee without understanding your obligations under the Employment Standards Act, or signing a commercial lease without a lawyer’s review can each create problems that are far more expensive to fix later than they would have been to prevent at the outset.
This guide explains the legal decisions involved in starting a business in Ontario: choosing a business structure, the incorporation process, shareholder agreements, the contracts every business needs, hiring your first employees, and how to find a corporate lawyer in the GTA who speaks your language. This guide focuses on the legal dimension of starting a business; for accounting, tax structuring, and business planning advice, you should also consult an accountant.
Choosing a Business Structure
The first legal decision in starting a business is choosing the structure through which you will operate. This decision affects your personal liability, how you are taxed, the cost and complexity of ongoing compliance, and how easily you can raise investment or bring on partners. Ontario recognizes three primary structures for most small businesses.
Sole Proprietorship
A sole proprietorship is the simplest structure: you operate the business personally, in your own name or a registered business name, and there is no legal separation between you and the business. Setup is fast and inexpensive. The major drawback is unlimited personal liability: if the business is sued or cannot pay its debts, your personal assets, including your home, are at risk. Sole proprietorships make sense for very low-risk businesses, for testing a business idea before committing to incorporation, or for certain professionals and freelancers, but most businesses with any meaningful liability exposure or growth ambition outgrow this structure quickly.
Partnership
A partnership involves two or more people carrying on business together with a view to profit. General partnerships share many of the drawbacks of sole proprietorships, including unlimited personal liability, with the added complexity that each partner can be personally liable for the actions of the other partners. A written partnership agreement is essential, since without one, the default rules under Ontario’s Partnerships Act govern, which are rarely what partners would have chosen for themselves. Limited partnerships and limited liability partnerships exist for specific situations (often used by professionals such as lawyers and accountants) and have their own formal requirements.
Corporation
A corporation is a separate legal entity from its owners (shareholders). This separation provides limited liability: in most circumstances, your personal assets are protected from the corporation’s debts and legal liabilities, beyond what you have invested in the company. Corporations also offer tax planning advantages, including the small business deduction on active business income, and make it easier to raise investment, bring on partners through shares, and eventually sell the business. The trade-offs are higher setup and ongoing compliance costs, including annual filings, corporate records maintenance, and generally more complex accounting.
Comparing the Three Structures
| Sole Proprietorship | Partnership | Corporation | |
| Personal liability | Unlimited | Unlimited (joint and several in general partnerships) | Limited (in most circumstances) |
| Setup cost and complexity | Low | Low to moderate (written agreement recommended) | Higher (incorporation, ongoing filings) |
| Tax treatment | Personal income tax on profits | Personal income tax on each partner’s share | Corporate tax rates; small business deduction available |
| Ability to raise investment | Limited | Limited | Strong (can issue shares) |
| Ongoing compliance | Minimal | Minimal (unless LP or LLP) | Annual returns, corporate records, more complex accounting |
There is no universally correct choice. A lawyer can help you weigh the specific risk profile, growth plans, and tax situation of your business against these structures. Many businesses start as a sole proprietorship to test viability and incorporate once the business has traction and the liability exposure or tax benefits justify the added complexity.
Incorporating a Business in Ontario
If you decide to incorporate, your first decision is whether to incorporate provincially (under Ontario’s Business Corporations Act) or federally (under the Canada Business Corporations Act).
Provincial vs Federal Incorporation
Provincial incorporation in Ontario is generally simpler and less expensive, and is the right choice for most businesses that will operate primarily within Ontario. Federal incorporation provides name protection across all of Canada and can be advantageous for businesses planning to operate in multiple provinces or that want the prestige and broader name protection of a federal charter. Federal corporations must still register extra-provincially in each province where they operate, which adds a layer of ongoing compliance. Most small businesses operating primarily in the GTA choose provincial incorporation.
The Incorporation Process
- Choose and search a corporate name: a NUANS (Newly Upgraded Automated Name Search) report checks your proposed name against existing corporate names and trademarks. Alternatively, you can incorporate under a numbered name (e.g. ‘1234567 Ontario Inc.’) and operate under a separate registered trade name.
- Prepare and file Articles of Incorporation: this foundational document sets out the corporation’s name, share structure, and other basic details, filed with the Ontario Business Registry.
- Establish the minute book: every Ontario corporation is legally required to maintain a minute book containing the articles of incorporation, by-laws, shareholder and director resolutions, share certificates, and other corporate records. Lenders, buyers, and auditors will all expect to see a properly maintained minute book.
- Appoint directors and officers, and issue initial shares: the corporation’s first organizational resolutions appoint the initial directors, adopt by-laws, and issue shares to the founding shareholders.
- Register for a business number and applicable tax accounts: through the Canada Revenue Agency, including HST/GST registration if your revenue will exceed the small supplier threshold.
- Register any trade name if operating under a name different from the corporate name.
Why a Lawyer for Incorporation, Not Just an Online Service
Online incorporation services can file the basic paperwork inexpensively, but they generally do not provide legal advice, do not tailor the share structure to your specific situation (which matters significantly if you plan to bring on investors, family members, or co-founders), and often leave the minute book incomplete or improperly maintained. A lawyer can structure the share classes appropriately for tax planning and future flexibility, ensure the minute book is properly maintained from day one, and flag issues specific to your business before they become expensive problems. For a multi-founder business in particular, the share structure decided at incorporation has consequences for years.
Shareholder Agreements
If your corporation has more than one shareholder, a shareholder agreement is one of the most important documents you will sign, and one of the most commonly skipped. Without a shareholder agreement, disputes between shareholders are resolved by the default provisions of the Business Corporations Act and the corporation’s articles and by-laws, which rarely address the situations that actually cause conflict between business partners.
What a Shareholder Agreement Should Cover
- Decision-making: which decisions require unanimous consent, majority vote, or can be made by a single director or officer.
- Transfer restrictions: limits on a shareholder’s ability to sell their shares to an outside party without first offering them to the other shareholders (a right of first refusal).
- Buy-sell provisions: what happens if a shareholder dies, becomes disabled, wants to leave the business, or is forced out (sometimes called a ‘shotgun clause’).
- Dispute resolution: how disagreements between shareholders are resolved, ideally without ending up in court.
- Valuation methodology: how the business will be valued in a buyout situation, agreed in advance rather than negotiated under pressure.
- Roles and compensation: clarity on what each shareholder is expected to contribute and how they are compensated for their work versus their ownership.
Many business partnerships, including those between close friends and family members, deteriorate because expectations were never put in writing. A shareholder agreement is not a sign of distrust between founders; it is a tool that protects the relationship by establishing clear rules before there is a disagreement to apply them to.
Contracts Every New Business Needs
Beyond the corporate documents, most businesses need a set of operational contracts from the outset. The specific contracts vary by industry, but the following are common across most small and medium businesses.
Client and Customer Agreements
If your business provides services, a clear services agreement or terms of service protects you by defining the scope of what you are providing, your fees and payment terms, limitations on your liability, and what happens if the client wants to cancel or if a dispute arises. Using a generic template found online exposes you to risk if it does not match how your specific business actually operates.
Supplier and Vendor Agreements
Agreements with suppliers should clearly establish pricing, delivery terms, quality standards, and remedies if the supplier fails to perform. For businesses that depend on a single key supplier, the terms of this agreement can be critical to the survival of the business if something goes wrong.
Commercial Leases
If your business will operate from a physical location, the commercial lease is one of the most consequential documents you will sign. Unlike residential leases, commercial leases in Ontario are largely governed by the terms of the lease itself rather than by tenant-protective legislation, and landlords typically use lease forms drafted heavily in their own favour. Key issues to review carefully include the length of the term and any renewal options, the rent structure (including whether it is ‘net’ or ‘gross’ and what additional costs you are responsible for), permitted use clauses, and your obligations regarding repairs and improvements. A lawyer’s review before signing a commercial lease is one of the highest-value pieces of legal advice a new business owner can get. For a comparison with residential tenancy rules, see our guide on tenant rights in Ontario (which applies to residential tenancies, not commercial leases, but helps illustrate how differently the two are treated under Ontario law).
Non-Disclosure and Non-Competition Agreements
If your business involves proprietary processes, client lists, or other confidential information, non-disclosure agreements with employees, contractors, and certain business partners help protect that information. Note that non-competition clauses in employment contracts are now largely prohibited in Ontario as against employees under the Employment Standards Act (with narrow exceptions for executives and business sale situations), so these need careful drafting to be enforceable.
Hiring Your First Employees
Hiring brings significant legal obligations under Ontario’s Employment Standards Act and at common law. Many new business owners underestimate these obligations, which can create serious liability down the road, particularly when an employment relationship ends. For a full explanation of an employer’s obligations on termination, see our guide on wrongful dismissal in Ontario, which explains the rights employees have and the corresponding obligations employers must meet.
Employee vs Independent Contractor
One of the most common and costly mistakes new businesses make is misclassifying employees as independent contractors. The label you put on the relationship does not control its legal classification; what matters is the actual nature of the working relationship, including the degree of control you exercise, whether the person can work for others, who provides the tools and equipment, and the degree of financial risk the worker bears. Misclassification can expose a business to significant liability for unpaid statutory entitlements, source deductions, and other penalties if a worker is later found to have actually been an employee.
Written Employment Contracts
A written employment contract, drafted with legal advice, is one of the most effective tools a new employer has to manage risk. A properly drafted contract can limit termination entitlements to the statutory minimums under the Employment Standards Act, rather than the potentially much larger common law notice period that applies by default in the absence of an enforceable contract. Contracts drafted without legal advice frequently contain termination clauses that are unenforceable due to drafting errors, which can leave the employer exposed to common law liability despite believing they had limited it.
Workplace Policies and Compliance
Beyond individual employment contracts, businesses with employees need to comply with a range of Employment Standards Act requirements covering minimum wage, hours of work, overtime, vacation pay, public holiday pay, and termination and severance entitlements. Depending on your industry and number of employees, you may also have obligations under the Occupational Health and Safety Act and the Accessibility for Ontarians with Disabilities Act.
Permits, Licenses, and Registrations
Depending on your industry and municipality, your business may require specific permits or licenses beyond basic incorporation or business registration. Food service businesses need health permits. Many professional services are regulated by specific governing bodies. Certain municipalities require business licenses for specific types of operations. Liquor licenses, building permits for renovations, and sector-specific licenses (such as those for financial services, real estate brokerages, or childcare) all have their own application processes. Research the specific requirements for your industry and municipality early in your planning, since some permit processes take months.
Buying an Existing Business
Some entrepreneurs choose to buy an existing business rather than start one from scratch. This involves a different and in some ways more complex set of legal considerations, primarily the choice between an asset purchase (buying the business’s specific assets, such as equipment, inventory, and customer lists, while generally leaving behind the seller’s existing liabilities) and a share purchase (buying the shares of the existing corporation, which means you inherit both its assets and its existing liabilities, known and unknown). Due diligence before a business purchase, reviewing financial statements, existing contracts, employee obligations, outstanding litigation, and tax compliance, is essential and should be conducted with legal and accounting advice. A purchase agreement for a business is a substantially more complex document than a typical commercial contract, and the structure chosen has significant tax and liability consequences that a lawyer and accountant should help you navigate together.
Why a Corporate Lawyer Who Speaks Your Language Matters
Entrepreneurship has historically been one of the clearest paths to financial independence for newcomers to Canada, and many of the GTA’s language communities have built substantial business presence in specific sectors: construction and trades, retail, food service, real estate, and professional services. The legal decisions involved in starting and growing a business, choosing a structure, negotiating a partnership, signing a commercial lease, hiring your first employee, are decisions with consequences that compound over years. Making them with full understanding, in the language you think most clearly in, materially reduces the risk of an expensive mistake.
A corporate lawyer who speaks your language can explain the implications of a shareholder agreement in detail, walk through a commercial lease clause by clause, and ensure that a business partnership you are entering with friends, family, or community members is structured to protect the relationship as well as the business. For many entrepreneurs, the people they are going into business with are also people they cannot afford to alienate through a misunderstood legal document.
Our Language Guides explain the legal landscape for specific communities across the GTA, including the entrepreneurial and business context relevant to each. Our Italian Language Guide, Korean Language Guide, and Portuguese Language Guide each discuss business ownership patterns specific to those communities in detail. We also publish guides for Mandarin, Cantonese, Hindi, Punjabi, Tamil, Farsi, Arabic, Spanish, French, Korean, Italian, Portuguese and Ukrainian. For a general guide on finding a multilingual lawyer, see our guide on how to find a multilingual lawyer in Toronto.
How to Find a Corporate Lawyer in the GTA
To find a corporate lawyer, visit the main lawyers directory, filter by Corporate Law and your language, and narrow by location. For advice on choosing and engaging a lawyer, see our guides on questions to ask before hiring a lawyer, the first legal consultation, and what to expect in a retainer agreement. Many corporate lawyers offer flat fees for routine matters such as incorporation, and hourly rates for more complex or ongoing work; see our guide on how much a lawyer costs in Ontario for a full discussion of fee structures. Always confirm the lawyer is currently licensed by checking our verification process or the Law Society of Ontario’s public register. If cost is a concern, see our guide on how to get legal advice in Ontario for free and reduced-cost options, though note that free legal clinics generally do not handle business law matters and are focused on housing, family, and other personal legal needs.
Frequently Asked Questions
Should I incorporate my business or operate as a sole proprietorship?
It depends on your risk exposure, growth plans, and tax situation. A sole proprietorship is simpler and less expensive to set up but exposes your personal assets to the business’s liabilities. A corporation provides limited liability protection in most circumstances and tax planning advantages, including the small business deduction, but involves higher setup and ongoing compliance costs. Many businesses start as sole proprietorships to test viability and incorporate once the business has traction. A corporate lawyer or accountant can help you weigh these factors against your specific business and personal circumstances.
Should I incorporate provincially in Ontario or federally?
Provincial incorporation under Ontario’s Business Corporations Act is generally simpler and less expensive, and is the right choice for most businesses operating primarily within Ontario. Federal incorporation under the Canada Business Corporations Act provides name protection across all of Canada and can be advantageous if you plan to operate in multiple provinces, but federal corporations must still register extra-provincially in each province where they operate, adding a layer of ongoing compliance. Most small businesses operating primarily in the GTA choose provincial incorporation.
Do I need a shareholder agreement if I am starting a business with a family member or close friend?
Yes, and arguably it matters even more in these situations. Business relationships between family members and close friends are particularly vulnerable to damage when a dispute arises without a clear agreement in place to resolve it. A shareholder agreement establishes decision-making rules, restrictions on transferring shares, what happens if a shareholder wants to leave or is forced out, and how the business will be valued in a buyout. Having these terms agreed upon calmly at the outset, rather than negotiated under pressure during a dispute, protects both the business and the personal relationship.
What is the difference between hiring an employee and hiring an independent contractor in Ontario?
The legal classification depends on the actual nature of the working relationship, not on the label used in a contract. Relevant factors include the degree of control the business exercises over how and when the work is performed, whether the worker can work for other clients, who provides tools and equipment, and the degree of financial risk the worker bears. Misclassifying an employee as an independent contractor can expose a business to significant liability for unpaid statutory entitlements and other penalties if the worker is later found to have actually been an employee. See our guide on wrongful dismissal in Ontario for more on employee rights and employer obligations.
How much does it cost to incorporate a business in Ontario with a lawyer?
Many corporate lawyers offer flat-fee incorporation packages, typically ranging from $800 to $2,000 inclusive of government filing fees, for a straightforward incorporation with a basic share structure. More complex incorporations, such as those involving multiple founders, a customized share structure for tax planning, or specific shareholder agreement drafting, are usually billed at an additional rate, often hourly. Online incorporation services may charge less for the basic filing, but typically do not provide legal advice, customized share structuring, or proper minute book setup, all of which a lawyer provides as part of the engagement. See our guide on how much a lawyer costs in Ontario for a fuller discussion of legal fee structures.
Find a Corporate Lawyer in the GTA Who Speaks Your Language
Starting a business involves legal decisions that shape your venture for years to come. Having a corporate lawyer who can explain those decisions clearly in your first language reduces the risk of costly mistakes and protects the relationships you are building your business on.
Lawyers Who Speak connects GTA entrepreneurs with verified, Law Society of Ontario-licensed corporate lawyers who speak their language. Search by language and practice area to find the right lawyer for your new business.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Business structures and corporate law are fact-specific and the law can change. Please consult a qualified corporate lawyer, and where appropriate an accountant, for advice about your specific business.
