Frequently Asked Questions: Business Law for Entrepreneurs and Corporations in Canada
Consult with a business lawyer today. Schedule your free consultation
Frequently Asked Questions: Business Law for Entrepreneurs and Corporations in Canada
Introduction to Business Law for Entrepreneurs and Corporations in Canada
Starting or growing a business in Canada comes with complex legal decisions — from choosing your structure to drafting shareholder agreements and closing M&A deals. At Kalfa Law our business lawyers in Toronto help entrepreneurs and corporations navigate every stage of the business lifecycle under Canadian law.
This comprehensive FAQ guide answers the most common questions about incorporation, corporate maintenance, business structures, mergers and acquisitions, contracts, financing, and compliance. Each section provides clear legal insight, practical guidance, and expert commentary tailored to Ontario’s business regulations and Canadian federal law.
Whether you’re launching a startup, buying or selling a company, or looking to optimize your corporate structure for growth, these FAQs will help you make informed, legally sound decisions — and know when to seek professional legal advice.
Main Practice Areas
Kalfa Law Firm is a Toronto-based business law firm specializing in private mergers and acquisitions (M&A) and corporate-commercial law for small and medium-sized enterprises (SMEs). Our goal is to deliver Bay Street expertise with boutique-level service, focusing on efficiency, tax optimization, and strategic growth.
This section answers key questions about our practice areas, industries served, and unique approach to helping business owners succeed in Ontario and across Canada.
Main Practice Areas FAQs:
What are the main practice areas at Kalfa Law Firm?
Kalfa Law Firm specializes in Private Mergers & Acquisitions (M&A) and Corporate-Commercial Law for businesses in Toronto and across Canada. In Private M&A, we guide clients through buy-sell transactions for small-to-medium enterprises (SMEs) valued between $1 million and $30 million across industries like construction, hospitality, health care, and technology. Our Corporate-Commercial services include business formation, governance, commercial contracts, financing, and tax-driven reorganizations like section 85 rollovers. Source: Kalfa Law Firm Services.
What makes Kalfa Law Firm unique in these areas?
Our focus on SMEs and cost-effective solutions sets us apart from Bay Street firms, offering tailored legal strategies without premium downtown Toronto prices.
What industries does Kalfa Law Firm serve in Canada?
Kalfa Law Firm serves diverse industries, including food and hospitality, health and medical, trade and wholesale, fashion, real estate, mining, technology, construction, education, manufacturing, and retail. We provide industry-specific legal solutions for SMEs with enterprise values from $1 million to $30 million, ensuring compliance with Canadian regulations like the Ontario Business Corporations Act (OBCA). Source: OBCA.
Business Structures in Canada
Choosing the right business structure is one of the most important legal and tax decisions for any entrepreneur in Canada. Each structure — from sole proprietorships and partnerships to corporations and joint ventures — has different implications for liability, taxation, and growth.
In this section, we explain the main types of business structures under Canadian and Ontario business law, their advantages and risks, and how to determine which one aligns with your goals. We also cover how to convert or reorganize your business as it grows.
Business Structures FAQs:
How do I choose the right business structure in Canada?
Choosing the right business structure in Canada depends on your business type, size, risk level, and growth goals. The main structures are sole proprietorships, partnerships, joint ventures, and corporations. Each has unique benefits and risks, as outlined below:
Structure
Liability
Taxation
Setup Costs
Best For
Sole Proprietorship
Unlimited personal liability
Personal income tax
Low (~$350 for trade name)
Small, low-risk businesses
Partnership
General: unlimited; Limited: limited
Flow-through to partners
Moderate (~$1400)
Collaborative ventures
Joint Venture
Tied to each party’s structure
Tied to each party’s structure
Low (minimal formalities)
Project-specific collaborations
Corporation
Limited liability
Corporate tax, dividends taxed
Higher (~$2000)
Growth-oriented businesses
Source: Canada Business.
How do I know which structure fits my goals?
Consult a business lawyer like Kalfa Law Firm to assess your liability needs, tax strategy, and expansion plans. Book a complimentary consultation now.
What is a sole proprietorship in Canada?
A sole proprietorship in Canada is an unincorporated business owned by one person. You receive all profits but are personally liable for all debts and liabilities. It’s the simplest structure with minimal setup costs (~$60 for a trade name via Ontario Business Registry). Source: Ontario Business Registry.
What is a corporation in Canada?
A corporation in Canada is a separate legal entity that owns assets, enters contracts, and takes on liabilities apart from its owners. Profits are taxed at the corporate level, and shareholders receive dividends after tax. Shareholders are not liable for corporate debts. Setup costs are ~$300 (Ontario) or $200 + fees (federal). Source: Corporations Canada.
What is a partnership in Canada?
A partnership in Canada is a business where two or more parties share ownership, profits, and responsibilities to make a profit. Types include:
General Partnership: All partners have unlimited liability and share management/profits.
Limited Partnership (LP): General partners manage and have unlimited liability; limited partners have liability limited to their investment.
A joint venture in Canada is a temporary collaboration between parties for a specific project, sharing resources, risks, and profits. Liability and taxation depend on each party’s structure (e.g., corporation, individual). Minimal formalities keep costs low.
What are the differences between a corporation, sole proprietorship, partnership, and joint venture?
The key differences are:
Liability: Sole proprietorship and general partnerships have unlimited liability; corporations and limited partners in LPs have limited liability; joint ventures depend on each party’s structure.
Taxation: Sole proprietorships/partnerships tax income personally; corporations face corporate tax, then dividend tax.
Setup: Sole proprietorships/partnerships are cheapest; corporations cost more (~$300–$360); joint ventures vary.
Continuity: Corporations persist; sole proprietorships end with the owner; partnerships/joint ventures dissolve without agreements. Source: Canada Business.
Which business structure has the lowest startup costs in Canada?
A sole proprietorship has the lowest startup costs in Canada, requiring only ~$60 for trade name registration (if needed). Partnerships cost ~$60–$100, joint ventures have minimal formalities, and corporations cost ~$300 (Ontario) or $200 + fees (federal).
Can a sole proprietorship be converted to a corporation in Canada?
Yes, a sole proprietorship can be converted to a corporation in Canada. If the business has significant value, this involves a section 85 rollover under the Income Tax Act to defer taxes, which can be complex and costly. Consult a business lawyer in Toronto to plan the transition. Source: CRA.
Sub-Question: What are the costs of converting a sole proprietorship?
Costs include incorporation fees (~$300–$360), legal fees for s.85 rollover documents, and potential tax implications if not structured properly.
What is a shareholders’ agreement, and why is it needed?
A shareholders’ agreement is a contract outlining rights, responsibilities, and relationships among shareholders in a corporation. It’s essential for multi-shareholder corporations to prevent disputes, covering buy-sell clauses, rights of first refusal, and valuation methods. Source: Canadian Bar Association.
Incorporation and Corporate Maintenance in Canada
Incorporating a business in Ontario or federally under the Canada Business Corporations Act (CBCA) offers tax advantages, limited liability, and long-term credibility. However, maintaining corporate compliance requires proper filings, resolutions, and annual updates.
This section walks you through the incorporation process, including NUANS name searches, share structures, tax account registration, and ongoing obligations under the Ontario Business Corporations Act (OBCA). You’ll also learn the key differences between federal and provincial incorporation and how to keep your corporation in good standing.
Incorporation & Corporate Maintenance FAQs:
What are the steps to incorporate a business in Canada?
To incorporate a business in Canada:
Choose a name and conduct a NUANS search (~$60).
File Articles of Incorporation (Ontario: ~$300; federal: ~$200 + fees).
Pay fees and prepare resolutions for directors/officers/shares.
Set up a minute book.
Source: Corporations Canada.
Should I incorporate federally or provincially in Canada?
Federal incorporation (CBCA) offers nationwide name protection but requires extra-provincial registration. Provincial incorporation (OBCA) is simpler for Ontario-only businesses. We assess your goals to recommend the best option. Source: OBCA.
How do I register a business name in Canada?
Sole proprietorships using your legal name need no registration. Trade names, partnerships, and corporations register with the Ontario Business Registry (~$60–$100, renewed every 5 years). Corporations need a NUANS report. Source: Ontario Business Registry.
What is a NUANS search, and why is it needed in Canada?
A NUANS (Newly Upgraded Automated Name Search) search checks a proposed corporate name against existing trademarks/businesses to avoid conflicts. It’s required for named incorporations (~$60). Source: Corporations Canada.
Does registering a business name in Canada grant exclusivity?
No, registering a business name in Canada doesn’t grant exclusivity; a trademark is needed for that. We conduct searches to minimize disputes. Source: CIPO.
What are organizational resolutions in Canada?
Organizational resolutions are post-incorporation documents appointing directors/officers, issuing shares, and adopting bylaws. They ensure legal validity and prevent dissolution. Source: OBCA.
What tax accounts are needed for a new business in Canada?
New businesses need:
Business Number (BN): From CRA for tax accounts.
HST Account: If sales exceed $30,000 annually.
Payroll Account (PR): For employees.
WSIB Account: For employee insurance.
Employer Health Tax (EHT): If payroll exceeds $1 million (Ontario).
Source: CRA.
What are ongoing obligations after incorporating in Canada?
You must maintain a minute book, file annual returns, hold shareholder meetings, and update records for director/share changes. Tax accounts (BN, HST, payroll) may apply. Source: OBCA.
What is corporate maintenance, and why is it important in Canada?
Corporate maintenance involves updating minute books, filing annual returns, and holding shareholder meetings to comply with the OBCA or CBCA. It keeps your corporation in good standing, avoiding dissolution. Source: OBCA.
Buying or Selling a Business (Mergers & Acquisitions)
Buying or selling a business in Canada — particularly in Ontario’s SME market — involves complex M&A legal steps, tax strategies, and due diligence. Whether you’re an entrepreneur planning an exit or an investor acquiring growth assets, understanding the M&A process is essential.
This section explains the major stages of a private merger or acquisition, from valuation and negotiation to closing and post-closing obligations. You’ll also learn about section 85 rollovers, vendor take-backs, share vs. asset purchases, and legal due diligence — all critical components for a successful transaction.
Buying and Selling a Business in Toronto FAQs:
What legal services does Kalfa Law Firm offer for buying or selling a business in Toronto?
Kalfa Law Firm provides comprehensive legal support for buying or selling businesses in Toronto, including:
Securing financing (e.g., vendor take-backs, loans).
We handle ~50 transactions annually across industries like retail and health care. View our M&A Process Infographic.
What is a section 85 rollover in Canada?
A section 85 rollover in Canada is a tax-deferred transfer of property to a corporation under Section 85 of the Income Tax Act, avoiding immediate capital gains tax. It’s used in corporate reorganizations, holding company setups, and business sales. Source: CRA.
How does a section 85 rollover differ from a section 86 exchange?
A section 85 rollover transfers property to a corporation; a section 86 exchange restructures share capital within a corporation (e.g., exchanging shares for new shares/debt). Both defer taxes but apply to different scenarios. Consult a lawyer for eligibility.
What is a vendor take-back in SME acquisitions?
A vendor take-back is a financing option in SME acquisitions where the seller loans part of the purchase price to the buyer, typically via a promissory note with interest. It’s common in Toronto SME M&A, deferring seller taxes and easing buyer funding. We draft agreements and secure them under the Personal Property Security Act (PPSA). Source: PPSA.
What are the key steps in a private M&A transaction in Canada?
The key steps in a private M&A transaction in Canada are:
Strategy and Valuation: Assess business value and goals.
Due Diligence: Review contracts, liabilities, and compliance.
Negotiation: Agree on terms (e.g., price, warranties).
Financing: Secure loans or vendor take-backs.
Closing: Finalize transfers and filings.
View our M&A Process Infographic.
What is involved in corporate reorganizations in Canada?
Corporate reorganizations in Canada restructure businesses for tax efficiency, growth, or succession. Common for SMEs, they involve section 85/86 rollovers, purifications, or butterflies to comply with CRA rules and protect assets. Source: CRA.
How can I finance my corporation’s growth in Canada?
You can finance your corporation’s growth through:
Debt: Bank loans, secured lending (e.g., PPSA-registered).
Equity: Issuing shares, private placements.
We draft legal documents and advise on tax strategies to minimize CRA liabilities. Source: CRA.
What are common M&A deal structures in Canada?
Common M&A deal structures in Canada are:
Asset Purchase: Buy specific assets/liabilities.
Share Purchase: Buy all shares, inheriting all liabilities.
Amalgamation: Merge companies into one entity.
We tailor structures to your goals under OBCA/CBCA. Source: OBCA.
What is an asset purchase in Canada?
An asset purchase in Canada involves buying specific assets and liabilities, avoiding unwanted obligations. It requires thorough due diligence to ensure clear title. Source: OBCA.
What is a share purchase in Canada?
A share purchase in Canada involves acquiring a corporation’s shares, taking ownership of all assets and liabilities. It’s simpler but inherits all risks, requiring strong warranties. Source: OBCA.
What is an amalgamation in Canada?
An amalgamation in Canada merges two or more corporations into one, combining assets and liabilities. It’s used for restructuring or acquisitions, requiring shareholder approvals. Source: OBCA.
How do asset purchases, share purchases, and amalgamations differ in Canada?
What are post-closing obligations in a Canadian business acquisition?
Post-closing obligations include transferring assets/shares, updating registries, filing tax elections with the CRA, and notifying employees/customers. We ensure compliance with OBCA/CBCA. Source: CRA.
What are common post-merger integration challenges in Canada?
Common challenges include harmonizing employment terms (per ESA), updating contracts for change-of-control, and filing regulatory updates. We provide legal checklists to ensure smooth transitions. Source: ESA.
Does Kalfa Law Firm advise on regulatory compliance for M&A in Toronto?
Yes, Kalfa Law Firm advises on compliance with competition laws, securities regulations, and industry-specific rules (e.g., environmental) for Toronto M&A and operations, ensuring no delays or fines. Source: Competition Bureau.
What are earn-outs in a Canadian M&A deal?
Earn-outs in Canadian M&A deals are deferred payments tied to post-closing milestones (e.g., revenue targets) over 1–3 years. They bridge valuation gaps but need clear clauses to avoid disputes. Source: Kalfa Law Firm.
How do representations and warranties work in Canadian purchase agreements?
Representations and warranties are seller statements about the business’s condition (e.g., no pending lawsuits). Buyers can claim indemnity for breaches. We negotiate balanced terms. Source: OBCA.
What employee and pension issues arise in Canadian M&A transactions?
In asset purchases, employees need new offers, risking ESA constructive dismissal claims. Share purchases maintain continuity. Pension transfers (e.g., defined benefit plans) are complex. We ensure compliance. Source: ESA.
How is intellectual property handled in Canadian M&A due diligence?
IP due diligence reviews ownership, registrations, and infringement risks. We draft IP assignments and warranties to protect value in tech or manufacturing deals. Source: CIPO.
What is an Agreement of Purchase and Sale (APS) in Canada?
An APS in Canada is a contract for transferring assets or shares, detailing price, warranties, conditions, and closing date. We ensure OBCA/CBCA compliance. Source: OBCA.
What conditions are typically included in a Canadian APS?
Typical APS conditions include due diligence, financing approval, and landlord consents for lease assignments or change-of-control. Source: Kalfa Law Firm.
What closing documents are required in a Canadian M&A transaction?
Asset sales need a Bill of Sale, Non-Competition Agreement, and Statement of Adjustments. Share sales require Share Transfer Consents, New Share Certificates, and Vendor Resignations. Source: OBCA.
What is legal due diligence in an M&A transaction?
Legal due diligence in an M&A transaction is a review of a company’s records, contracts, liabilities, and compliance to identify risks. It covers corporate documents, employment agreements, and IP. We ensure informed decisions for buyers/sellers. Source: Kalfa Law Firm.
Commercial Contracts and Corporate Agreements
Strong contracts are the foundation of every successful business. From shareholder agreements to supplier contracts and loan agreements, every document defines rights, responsibilities, and risk.
This section covers the most common commercial contracts drafted and reviewed by our Toronto business lawyers — including shareholder agreements, loan agreements, financing contracts, and corporate governance documents. You’ll learn why clear terms and enforceability are essential to protecting your business under Canadian contract law.
Commercial Contracts and Corporate Agreements FAQs:
Does Kalfa Law Firm prepare commercial contracts for businesses in Toronto?
Yes, Kalfa Law Firm drafts and reviews commercial contracts for Toronto businesses, including supplier agreements, NDAs, and licensing deals. We tailor contracts to industries like technology and retail to minimize risks and ensure enforceability. Source: Kalfa Law Firm.
How does Kalfa Law Firm handle shareholder disputes in Canada?
Kalfa Law Firm resolves shareholder disputes through mediation, buy-sell provisions, or litigation. We recommend strong shareholders’ agreements with clauses like shotgun provisions to prevent conflicts over exits or control. Source: Canadian Bar Association.
What are key shareholder agreement clauses in Canada?
Key clauses include:
Right of First Refusal: Buy shares before third-party sales.
Tag-Along/Drag-Along Rights: Protect minority/majority in sales.
Valuation Clause: Sets share valuation method.
Non-Compete/Non-Solicitation: Limits post-exit competition.
Source: Canadian Bar Association.
Who can elect directors in a Canadian corporation?
Shareholders elect directors by majority vote or appoint representatives per agreements. Directors must act in the corporation’s best interests. Source: OBCA.
What is a unanimous shareholders’ agreement in Canada?
A unanimous shareholders’ agreement (USA) restricts directors’ powers and sets dispute-resolution procedures, ensuring collective control. Source: OBCA.
What role do private equity investors play in a Canadian corporation?
Private equity investors provide capital for shares, influencing operations like director appointments, share transfers, and IP protection. Source: Canadian Bar Association.
Can minority shareholders approve capital expenditures in Canada?
Yes, minority shareholders can approve capital expenditures if the shareholders’ agreement requires their consent. Source: OBCA.
Business law in Canada is constantly evolving — and having the right legal guidance can make the difference between growth and costly mistakes. At Kalfa Law we help entrepreneurs and corporations make informed decisions, structure their businesses effectively, and execute transactions confidently.
Shira Kalfa is the founding partner of Kalfa Law Firm. Shira’s practice is focused in corporate-commercial and private M&A law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law.
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.
Consult with a business lawyer today. Schedule your free consultation
