It is not uncommon these days for employed workers, students, and even small business owners to have other side jobs or other business projects. This is especially true during times of economic uncertainty when people need another source of income and start asking questions on how to start an online business in Ontario.
You, yourself, may be considering the idea, and with good reason. Online businesses are likely to continue earning income when your physical business or job is threatened. In addition, there are unlimited types of businesses you can start online.
The only obstacle that may be stopping you is the business aspect. How do you start your business online? What paperwork do you need to file? How do you manage online revenue? How do you pay yourself?
In this article, we cover some general and legal guidelines on how to start a business online.
How To Choose A Business Structure
Starting a business online may seem like a daunting task, however, some of the traditional aspects of starting a physical business also applies to starting an online one. If you already have an idea of what type of business you want to create, you will need to decide on your business structure.
You may want to first establish your online business as a sole proprietorship. There are advantages that come with this type of business structure:
- Sole proprietorships are the easiest type of business structure to start.
- It is the most cost effective.
- Profits, losses, and assets pass to you as the owner.
- Taxes are reported with your income tax, making it easy to file.
To begin, you will need to come up with and register a business name, if you haven’t already (you will want to coordinate this with your website domain for branding purposes). This will provide you with a business license and number you need to work with the CRA.
Incorporating an online business is another common path to take. People usually incorporate a business because of its advantages:
- It allows you to treat your business as a separate entity from you as the owner, its employees, directors, and shareholders.
- A corporation can be taxed, apply for loans, receive profits and losses, enter into contracts, and even have assets.
- You have two options: federal or provincial incorporation. This essentially determines how and where you can operate
However, a corporation comes with a complex legal structure, and as a result, is more expensive to set up. Once you decide where your corporation will operate, you will need to file within that province.
You should consider a free consultation with one of our corporate lawyers on how to fill out and file the necessary paperwork when switching from sole proprietorship to incorporated as these will be complicated and involve legal jargon you may not be familiar with.
How To Register A Small Business Domain Name
Next, you will need to consider a website if you are to succeed at running a business online. You will need to pick and register a domain name in Canada, preferably the same as your business name.
Registering a domain name can be done by anyone and is relatively affordable. Note that you cannot buy a domain, but you can renew your registration annually and even pre-pay for a few years in advance. Domain registration services like GoDaddy, are a good place to start.
When you have a domain, set up your website. While constructing your website, consider…
- The function of the website (how will it meet customer and business needs?)
- The official policies between you and your customers (terms & conditions, privacy policies, third party partners)
- The back end and what needs to be set up (product listings, a shopping cart, credit card processing, support system)
Once you have your website set up, you need to ensure that you are aware of any legal regulations that apply to using an online platform for your business. This is especially important if you are starting up a tech business. Some aspects to look into include regulations on user data collection, security (SSL certificate), payment gateways, and financial transactions.
Managing Online Sales, Licenses, Taxes, and Finances
Before your business goes live, you should take a good look into how your finances will work out. When you get your business license, you will also get a business number (BN) that will allow you to operate financially.
Canadian taxation policies for e-commerce require you to report each web page or website you own which earns you income. Reporting requirements will differ according to your business structure. As a corporation, you will need to fill out Schedule 88 with your T2 to report your online business activity.
Sales taxes, regulations and licensing requirements are also something to consider. Each province has different regional requirements for when selling or shipping to customers in a specific area. You will need to know when to charge sales tax (Overview of charging and collecting sales tax), what are best practices for email marketing (Canada’s Anti-Spam Legislation), and how consumers’ rights are protected (Ontario Consumer Protection Act).
It is also a good idea to look into copyright, trademark, and patent laws if you are selling a product you yourself developed or created to avoid any legal issues in the future.
Your own salary is one of the important financial matters to factor in. How do you pay yourself? If you structured your business as a corporation, you have two options:
- Pay yourself a salary. This means that you are on the regular payroll schedule, and the company will deduct and/or remit source deductions to the CRA.
- Take out money in the form of shareholder loans. These loans you will have to clear as either a bonus that will be used to offset the loan, or declare the money as a dividend paid out to yourself as a shareholder.
At first your income won’t be able to pay you, so paying yourself in dividends quarterly will be your best option.
How To Run A Business Online
Think about operations and how things will work. Actively promoting your business with integrated marketing campaigns will help you generate leads, brand exposure and customers.
The workflow and process requires just as much attention with online businesses as traditional brick and mortar businesses. If you find that you need more resources and manpower to run your online business, you may want to consider hiring more people. This is where having a business number with the CRA will be required for making payroll payments.
Also, there are resources for businesses, like incubators and accelerator programs that can help kick start and improve your business plan, startup financing, and strategy. Building up a network with like-minded individuals getting into the online business world can be extremely beneficial in developing and expanding your business down the road.
Starting Your Own Online Business
If you are thinking of starting an online business, we can help answer any questions you may have. It will take some time and dedicated work to build up your business, but with some legal help you can get it off on the right foot.