In this instructional video, Kaival Patel explains why many Canadian startups fail—primarily due to unexpected tax liabilities and missed government grant opportunities that stem from an incorrect legal structure. He outlines the three main ways to register a business in Canada: (1) operating under your personal name (sole proprietorship), (2) registering a trade or business name, and (3) incorporating. For each option he details the tax filing process, registration costs, banking requirements, liability exposure, and the GST/HST registration threshold of $30,000 in annual revenue. He then provides a decision framework: if you have partners, expect revenue above $30,000, or need liability protection, incorporation is recommended; if revenue is below $30,000 and you want a brand name, a trade name is sufficient; otherwise, a sole proprietorship works. The video concludes with practical recommendations based on the viewer’s situation, emphasizing the importance of setting up the correct structure from day one to maximize tax benefits and access to government programs.
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Most businesses in Canada fail within their first 3 years, and it's not about poor planning or bad management. It comes down to mainly the 2 reasons. One of them is the taxes. They get hit with the unexpected taxes that they cannot deal with. And second one is they are not able to find the right government grants, right government programs to support their business to skyrocket. And why this happen? Because their foundation and legal structure is incorrect from the day one. So if your structure is incorrect, whole building is gonna collapse. In this video, I'm going to guide you how to set up your business right in Canada from the day one to get the maximum tax benefit as well as get the maximum access to the government grants. Also, what are the different pros and cons for each of the structure? And at the end of the video, I'm going to recommend you what is the best and correct structure based on your situation. So watch till the end. So in the Canada, there are mainly 3 ways to start your business. First one is the under your personal name, second one under your business name, and third one is to open under your corporation. So what are the pros and cons of them? Let's start with the first. That is under your personal name. Oftentimes accountants and people refer them as a sole proprietorship. One of the major benefits of the sole proprietorship is very simple structure. So basically your business and yourself is not a separate entity, it is one and only you. At the year end, when we come to the taxes, it is basically in your personal T1 return, you will be adding your salary income plus the business income. So you need to pay the taxes on the income earned under your personal name as well. When you talk about the annual cost for the sole proprietorship, it is the cheapest option among the all because it doesn't require any registration within the Canada. So basically from the day one you can start your business under your personal name, not a big issue. One more question, do you need to maintain your separate bank account for the sole proprietorship? The answer is yes and no as well. So no, because technically you don't need to require to have a separate bank account. Basically what you can do is under your personal bank account you can get the all the sales, all the receipt under a personal bank account, no questions, nothing to worry. But if you maintain the separate account, it's very easy for you also to track the business. So So let's say next year, if your business bank account has, let's say, $10,000, $20,000, $50,000 balance, you know your business is making profit, right? But if you combine under one account, you really don't know unless you have the detailed reports from the accountant. Also, if you maintain the separate bank account, it's easier for your accountant as well. At the end of the year, you just need to send them the personal bank statement for the separate business account. Okay, now let's talk about the major drawback of the sole proprietorship thing. The major drawback is that you and your business is not separate. So why does it matter? Because oftentimes what happens is you're dealing with the customer, employees, bank, a lot of people, right? And in Canada, it's easy to sue someone for a million dollars. Something might happen with the customer, employee, or anything, they might sue your business. And your business is not separate, it is basically yourself only. So they will be suing you personally in your personal name only. And if they sue you, your personal car, your personal house, your personal cash, all of this can be compromised in this legal situation. And they might take this away. So it's a major drawback when it comes to the sole proprietorship. Now let's do the second part, opening a business under your business name. So in this one, oftentimes you can get a registration. In Ontario, it's called Ontario Master Business License. So basically, I am Kaival Patel. Let's say I want to open my accounting firm under a business name. So I will be doing KVP CPA. My name is Kaival Patel, but my firm is separate. It's not legally separate, but I have a trade name to operate under it. What's the difference? Basically, in terms of taxes, there is no difference. At the year end, I just need to include everything. In terms of banking, yes, I need to open a separate business bank account for this particular trade name. I will go to the bank, give the documents like master business license or registration certificates, they will open a bank account. I can get a receipts and deposits under it, right? That's one of the part. So now what is the major benefit of this business name is you get to have a name. So I like KVP CPA Taxes and Accounting, for example. So I can have this board name under my house, I can put it under my office, I can print the visiting card, I can make the website, and everything is legal. So that's the major benefit. What is the major drawback for this one? Little— the same drawback, it's still not separate from my personal entity. It is still business, but it doesn't limit my personal liability, right? So I still have unlimited personal liability for this business also. And what is the annual cost to maintain this? It's not very high. Basically, it's as good as sole proprietorship, the first one we discussed. It's just little bit extra. So your accountant might charge you maybe $150, $200 for to do your personal taxes. Now we talked about both the things, opening a business under personal name, opening a business under business name. Both of them have one common compliance requirement, that is GST HST registration requirement. So it's a little bit detailed requirement, but I will summarize for you. So if your business makes more than $30,000 annually in a year, particular year, then you need to register for a GST HST registration. So GST HST is very complex topic and it requires a separate video, so make sure to subscribe my channel so you get a new notification. I will be making next video on it. Okay, let's talk about the third part, opening a business under corporation. So in the Canada, opening a corporation is not a really big thing. Anyone can open the corporation, even with a single person. So what are the pros and what are the cons? The major pro, that is basically your corporation has a limited liability towards the debt. So for example, let's say I open my firm KVP CPA Professional Corporation. That's a separate corporation, legal entity. It is separate from me. It is doing business with the customers, realtor, mortgage agent, it is dealing with the CRA employees, everything. So if at all something happens, people will gonna sue my firm, not me. So the liability restricts towards its asset and its liability only. It doesn't come under my personal name. Whatever I have contributed so far, that's it. Nothing extra it can be taken from me. That's the major advantage of the corporation. Now one of the other major advantages, tax defer and tax planning. When we talk about the first and second part, like business under personal name and business name, Each year, whenever you make the money, you need to pay taxes in the same year itself. But when you have the corporation, you have the chance to postpone it to the future year. Pay the corporation taxes, keep the money in the corporation, and you can choose whether I want to withdraw this money at this year or not, whether I want to withdraw money for the future as well. This is a major tax planning you can do under corporation. What is the major con of the corporation? One of them is it's a little bit costlier to maintain than the sole proprietorship and the business name. And second part is it's a little bit complex to understand at times as well. But if you have a meeting with your accountant or tax consultant, he will be able to guide you thoroughly, like what is it, how you can benefit. But Kaival, you told me about all these 3 different structures. What is better for me personally when it comes to the taxes and the planning part? Very good question. So now it depends on the particular situation. So ask yourself, do you have another partner in this business as well? So let's say if you have another partner also, I would strongly recommend you to open a corporation because it has a separate entity. So let's say in the future your partner does something and there is a legal case going on him also. I don't want you to also get involved in that legal case, right? So you protect yourself by having a middle entity. So that's one of the things. How serious are you about this business? You expect your sales to go above $10,000, $20,000, or $30,000? $30,000 is very sweet spot. If you expect your sales to go above $30,000, I recommend you to open a corporation because at that point, the cost you are going to pay to the accountant might be annually $500, $1,000, $2,000. That will surpass the tax benefit that you are gonna pay in the personal and business name. So $30,000 is also a sweet spot because at that point also GST HST requirement comes into the play. This was for the above $30,000. Let's talk about below $30,000. If your sales below $30,000 and you don't expect to grow, let's say next year also, then if you want to have a trade name that you want to deal with the customer, you want to grow a brand around your business, then the business name is best. Because honestly, the business name doesn't cost that much. Within the same day you can also get it. And if none of this apply, I would suggest you can open under your personal name, not a big issue. So all the best for your new venture and I hope you will be a grand success.
