What Legal Aspects Do Startups Have to Take Care of?

 

According to surveys, around 1.21 million businesses operate in Canada. Out of these, around 1.19 million businesses are considered small companies or startups, making them 97.9% of the corporate presence in Canada. Even though thousands of startups are launched in Canada yearly, starting a new business can be challenging. Business owners have to tackle several aspects to ensure that their company doesn’t land into financial or legal trouble or develop a negative reputation at the start.

From conducting market research and drafting a suitable business plan to determining the target market and coming up with the ideal product roadmaps, startupshave to take a lot of steps for their company to be successful. Besides handling the finances, hiring, marketing, sales, and more of a new business, startups also have to take care of various legal aspects. Many business owners often ignore the legal challenges that come with starting a business, but that’s a huge mistake.

Corporate lawyers recommend managing legal aspects alongside to avoid any long-term consequences. This article discusses some legal aspects startups have to take into consideration.

Choosing the Ideal Business Structure

Do you know that business owners need to choose the ideal business structure or entity while launching their business? This is a step you should never avoid, as it can determine your company’s legal status, tax requirements, market position, and liability. Here are some common business structures.

● Limited Liability Company (LLC)

● Limited Partnership

● General Partnership

● Sole Proprietorship

Business owners need to understand what each business structure entails before deciding. A corporate lawyer can explain the differences between these business entities, allowing you to choose according to your business requirements.

Ensuring Your Startup Has the Required Licenses and Registrations

Once you have decided on your business structure, you need to get your startup registered immediately so it can operate in Canada. Additionally, based on the products you sell or the services you provide, you might need specific licenses or permits. For instance, if you have launched a restaurant, you must have a liquor license to serve alcohol on the premises.

In the same way, if you’re using a commercial facility to operate a business, you might need fire safety permits. So business owners need to hire a corporate lawyer and let them research the provincial and local permits your startup may need and help your company get those quickly.

 

Paying the Right Amount of Business Tax

In Canada, companies are required to pay business taxes yearly. This tax amount can range anywhere from 9% to 15% of a company’s annual taxable income, based on the type of business and its revenue. Failure to pay corporate taxes can lead to a fine equivalent to 10% of the unpaid tax amount. Additionally, this amount will increase by 2% for every month companies don’t pay taxes.

The severe financial consequences of not paying corporate taxes make it essential for startups to ensure that they pay their taxes on time. Startups’ managers need to calculate the right amount of tax they have to pay, including sales tax and self-employment tax, and pay the tax before the deadline.

 

Taking Steps to Protect Your Startup’s Intangible Assets

One of the biggest legal mistakes that most startups make is not taking steps to protect their company’s intangible assets. Even though startups take security measures to keep their tangible assets like properties or hardware safe, the same resources aren’t invested in securing intangible assets, also called the intellectual property of a business. These intellectual assets can include a startup’s domain name, patents, developed software applications, copyrights, and trademarks.

These intangible assets can be easily stolen if startups don’t take immediate steps to protect them. It’s advisable to file patent applications as soon as you launch an innovative product. Additionally, you can register your domain name, startup name, and other trademarks like logos to ensure that no other business uses them. A business lawyer will help you secure your company’s intellectual property, allowing you to focus on boosting your company’s growth.

 

Classifying Your Startup’s Employees

Hiring employees for your newly-launched company can be challenging, especially when you need to find goal-oriented and highly-skilled workers. However, besides recruiting talented employees, you also need to handle the legal aspects of dealing with employees. Start by ensuring that your employees are classified correctly. For instance, you need to ensure you aren’t confusing a full-time contractual employee with an independent contractor.

The ideal way to ensure that you and your employees are on the same page regarding their role in your startup is to draft legal contracts, including all the essential terms and conditions. These documents can discuss the responsibilities of your employees, what guidelines they’re supposed to follow, their salary, and any consequences they’d have to deal with if they violate the contract.

Besides ensuring that you calculate the right amount of taxes, these contracts allow you to stay away from any legal or financial trouble. For instance, if you hire someone as an independent contractor, Canadian Federal Labour Standards don’t expect you to pay them other benefits. However, you can land into legal trouble if you misclassify them as contractual employees instead of independent contractors.

 

Establishing a Privacy Policy

In the current era, businesses gather their customer’s data and use it to create better products and services or develop enhanced and tailored marketing approaches. If your startup sells products online or gathers customer information in any way, you need to draft a privacy policy immediately. A privacy policy refers to a corporate and legal statement. This document discusses how a company gathers data, why it collects customer information, and what kind of details are stored.

Additionally, a privacy statement states what a startup plans on doing with the gathered information. The privacy policy also discusses the measures a company takes to protect confidential data. Startups need to ensure that they have a solid privacy policy that follows federal privacy laws.

You also need to remember that if your startup violates privacy laws, you can land in legal and financial trouble. Drafting privacy policies helps startups avoid hefty fines if their users’ information is hacked. Additionally, startups should publish their privacy policy online to allow their customers to read it.

 

Drafting an Employee Handbook

Besides creating contracts that specify the responsibilities of employees, startups also need to draft an employee handbook that discusses all the guidelines their employees have to follow. Startups need to remember that when their employees are representing the company, the business can be held liable for any activity of the employees. Therefore, startups must create employee handbooks letting employees know what activities are off-limits during work hours.

Startups can discuss how employees are expected to behave in the workplace and even set boundaries on how they interact with other employees or clients. Additionally, you can also specify any consequences that employees may have to face if they violate any guidelines. Drafting employee handbooks allow startups to avoid any legal liability and build a productive and stress-free work environment.

Creating Contracts with Investors

Startups often have to get funds from investors to operate their businesses. While raising capital for your startup, merging it with another company, or selling shares to another business can be sound corporate strategies, they can lead to several legal challenges if you move forward with any deal without forming a contract.

For instance, if a startup sells some shares to another company in return for some quick funds, they need to ensure that the investor doesn’t resell the shares to any competitor, as that negatively impacts a startup’s operations. Therefore, you need to form contracts, include the required terms, and sign them before doing any deal.

 

Starting a New Business in Canada? Hire a Corporate Lawyer

Since startups have to handle several legal aspects, they need to hire business lawyers that can help them handle legal matters and tackle sudden challenges. Nanda & Associate Lawyers is a boutique law firm with three branches in Mississauga, Brampton, and Toronto that has a team of professional corporate lawyers. These business lawyers can take care of the legal aspects of starting, expanding, or operating a business. Additionally, these corporate lawyers can help companies write contracts, form shareholder partnerships, purchase new branches, and stay away from legal trouble.

Besides providing corporate legal services, Nanda & Associate Lawyers also has immigration lawyers. These immigration consultants guide Canadian immigrants about various streams, helping them navigate the process easily. Their family lawyers also provide tailored solutions in divorce, child custody, alimony, and child support cases. Additionally, their commercial real estate lawyers in Ontario handle the buying, selling, and renting of commercial buildings. Their wills and estate lawyers guide individuals in estate planning and probate matters. Also, their personal injury lawyers help injured people get their desired financial compensation.

So, what are you waiting for? Book a consultation with the corporate lawyers at Nanda & Associate Lawyers and let them handle your company’s legal requirements.

 

Disclaimer: This article is only intended for educational purposes and shouldn’t be used as a substitute for legal advice.