Legal oversights can cost new business owners time, money, and credibility. In Canada, where regulations can vary by province and industry, understanding legal basics is crucial. Here are the top five legal mistakes entrepreneurs make—and how to steer clear of them.
1. Not Choosing the Right Business Structure
Mistake: Many entrepreneurs default to a sole proprietorship without understanding the implications.
Solution: Take time to understand the pros and cons of sole proprietorships, partnerships, and corporations. A corporation, while more complex, offers limited liability and potential tax advantages.
2. Failing to Register Properly
Mistake: Operating under an unregistered business name or missing required licenses.
Solution: Register your business name with the appropriate provincial registry. Use BizPaL to identify licenses or permits you need based on your industry and location.
3. Ignoring Contracts
Mistake: Handshake agreements or informal deals with suppliers, clients, or partners.
Solution: Always use written contracts. Clearly define roles, responsibilities, payment terms, and dispute resolution clauses to avoid future misunderstandings.
4. Inadequate Intellectual Property Protection
Mistake: Overlooking trademarks, patents, or copyrights.
Solution: Protect your brand by registering trademarks with the Canadian Intellectual Property Office (CIPO). If you’re creating unique products, software, or content, consider legal steps to protect them.
5. Overlooking Employment Laws
Mistake: Hiring contractors without proper agreements or failing to follow labour standards.
Solution: Understand the difference between contractors and employees under Canadian law. Follow provincial labour codes regarding minimum wage, vacation pay, and termination.
To avoid these issues, consult a small business lawyer early, especially during setup. Legal clarity from the start sets your business on a solid foundation.