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165 Days Before Launch

The basics of structuring your business, from sole proprietorship to shareholder agreements

Aug 1, 2013

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story-header-165daysYou’ve identified a need in the market and have the finances in place to fulfill that need. Congratulations: Now it’s time to make your business official. First, you need to decide which legal business structure you want – a sole proprietorship, a partnership, or a corporate structure. A sole proprietorship and a partnership are simpler structures, with smaller startup costs, but it can be difficult to raise additional capital, and if the business fails, you (and any partners) are personally liable. If you decide to go with a corporate structure, your business becomes a separate legal entity that can continue without you, and you have limited liability in case of failure. You also have more options for raising capital, with the capacity to sell shares. After you choose your business structure, you can officially register both your business name and your business.

Tip: What’s in a name?
Before settling on a name for your company, do a NUANS corporate name search to check whether your name is available – if someone has already registered your chosen name, they can (and very likely will) force you to change it. If you’ve already spent a small fortune on signage and branding, well, good luck getting a refund. If, on the other hand, your chosen name is available, NUANS will reserve it for you for 90 days.

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Don Tse, partner, Norton Rose Fulbright

A. They have to decide what business structure they want to use. Often people start businesses with friends and family and I always want to encourage people, assuming it’s a corporate structure, to have a unanimous shareholders agreement, or if it’s a partnership structure, to have a formal partnership agreement. Disputes arise over how the business should be run. You want to have these things thought out beforehand, so you don’t get into arguments that ruin friendships or end up causing family strife.

A: People very often identify their businesses with themselves, and yet it’s important to keep those two concepts separate. You are an individual and you have a business. So the question is how are you going to fund money into the company, and the company, when it makes money or loses money, how will that money flow back to you as an individual […] It depends on when you envision the company making money. Based on your best guess you can determine what the best way is. And of course some of these things aren’t permanent. You could start as a sole proprietorship and incorporate three years later.

A: If you have other investors or envision in the future having other investors, you need to consider what role you want to allow them to have in the business. For small business, very often, people start these businesses with friends and family. I always want to encourage people to do, assuming it’s a corporate structure, a unanimous shareholder’s agreement, or if it’s a partnership structure, having a formal partnership agreement. Even though these are family members or sometimes lifelong friends, disputes arise over how the business should run.

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The balancing act

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Tara Kelly, founder and CEO of Splice Software

If you’re in the technology sector, you probably worry more about your intellectual property than other new business owners. After all, your success or failure may depend on the uniqueness of your product. That’s the case for Splice Software. The company specializes in voice software that is “linguistically optimized” and sounds human, in order to drive better responses from their clients’ customers. Splice does work for call centres, retailers, and government, among others. Tara Kelly, founder and CEO of Splice, has learned how to protect intellectual property. She recommends looking at trademarking your business name (which is different than registering your business), if you are starting to develop a brand. It’s also important to consider patents before you start making and selling a product, because once you disclose something to the market, you can’t ever patent it. “Go after a patent if you’re creating something truly unique,” Kelly says, adding that the services of a patent lawyer can be invaluable.

But for all that protection of your intellectual property, Kelly says not to be too guarded – you need some feedback on your ideas, even before you reach the patent stage. “Tell everybody what you’re doing,” she says. “Don’t keep it a secret.” She recommends entering pitch rodeos and telling friends, family and colleagues about your idea and seeing if others can see the value in your product. “With software, in order to get people to spend money, there has to be a value exchange. In the early stages of your company, the more clear and clean you can get that value exchange, the faster people are going to part with their cash,” she says.

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So you want to start a restaurant

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Brad Lazarenko, owner, Culuna Restaurants & Catering

Brad Lazarenko knows a thing or two about starting restaurants. The head chef and owner of Edmonton’s two Culina restaurants has been working in restaurants since his teens, and always knew he’d eventually have his own kitchen. In 2004, that became a reality with the opening of Culina Mill Creek, but Lazarenko has learned just as much (and maybe more) from his failures as from his successes.

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GONE LOCAL: Brad Lazarenko’s Culina Restaurants & Catering focuses on delivering delicious locally sourced cuisine to its Edmonton customers.

After opening Culina Mill Creek, Lazarenko fell in love with B.C.’s Okanagan, and opened a restaurant, Passatiempo, at the Spirit Ridge resort in Osoyoos in 2006 with a partner from the resort. “I had sort of a partnership dispute, or divorce,” he says. “Everyone goes through that. You take your lumps and move on.” The lesson, Lazarenko says, it to make sure you know who you’re getting into business with and be clear on what the expectations are. While he lost the restaurant – and more than $100,000 – things could have been worse. Lazarenko had a unanimous shareholder agreement that protected him, and was able to refocus his efforts on his Edmonton business and make back his losses.

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