10 Mistakes New Canadian Companies Should Avoid

4 Dec

Starting a business is an exciting journey, but it can also be daunting. There are so many details to manage, and it’s easy to overlook a few critical steps along the way. As someone who works with new businesses regularly, I’ve seen many avoidable mistakes that lead to stress, wasted time, and unnecessary costs.

Let’s walk through some of the most common mistakes new companies in Canada make—and how to steer clear of them.

Choosing the Wrong Business Structure

The first major decision when starting your business is choosing the right structure. Generally, the most common options are to operate as a sole proprietorship, partnership, or as a corporate. This choice impacts everything from taxes to liability to how your business can grow.

For example, if you’re running a side hustle and want to keep things simple, a sole proprietorship might make sense. But if you’re thinking long-term and want to limit your personal liability, incorporation could be the better option.

The key is to understand how each structure works and what it means for you. This is an area where speaking with a professional can save you a lot of trouble down the road.

Overlooking Shareholder Agreements

If you’re starting your company with other people, a shareholder agreement is essential. While it’s easy to assume you’re all on the same page, disagreements can arise over time about roles, decision-making, or equity splits.

A good shareholder agreement outlines the expectations for each person, how decisions will be made, and what happens if someone wants to leave the business. It’s much easier to have these conversations early, when everyone is optimistic and on the same team, rather than later when emotions might run high.

Neglecting Trademarks and Brand Protection

A NUANS name search is often part of the business registration process, but the search does almost nothing to protect your brand, and neither does a business name registration itself. Without a trademark, there’s virtually no way to effectively protect your brand across Canada.

Perhaps more importantly, you probably want to avoid spending months creating a recognizable brand, only to find someone else has trademarked your name. If that happens, you might be forced to rebrand, which can be costly and frustrating.

Pursuing a trademark application (along with a clearance search) early is a simple way to protect your brand and avoid potential disputes. A clearance search ensures your brand name won’t conflict with existing trademarks, while a trademark – once it’s registered – protects your brand nationwide.

Protecting your brand with a trademark is one of the smartest investments you can make for your business.

Failing to Use Proper Contracts

Contracts are your best friend when it comes to running a business. They help set expectations, define terms, and mitigate risks. Yet, many new businesses operate without them or rely on generic templates that don’t reflect their specific needs.

For instance, if you’re working with a supplier, a good contract ensures you get what you’re paying for, on time, and limits your risk if the relationship goes sideways. Similarly, with clients, a clear agreement can help avoid disputes over payment or deliverables.

Taking the time to draft proper contracts for key relationships—whether with suppliers, customers, or partners—can save you countless headaches in the future.

Not Understanding Tax Obligations

Taxes can be a confusing part of running a business, especially when you’re just starting out. Many new companies forget to register for GST/HST, payroll accounts, or other provincial tax requirements.

The issue? Failing to register or file properly can lead to penalties or audits.

Set yourself up for success by understanding which tax accounts your business needs and ensuring you file on time. If you’re unsure, working with a professional is well worth the investment.

Ignoring the Importance of Website Terms & Privacy Policies

Your website is a vital part of your business, but many new companies overlook the need for clear terms of service and a privacy policy. By doing that:

You risk non-compliance with privacy laws like Canada’s PIPEDA, which can lead to fines or legal action.
In today’s digital world, consumers are more privacy conscious and forgetting to create a privacy policy may undermine trust in your business.
Without website terms, your business will probably lack a legal framework to protect it’s online assets and defend itself from disputes.

Taking the time to draft proper terms and privacy policies policies keeps your business compliant and builds customer confidence.

Using Unlicensed Website Images

This is a mistake that isn’t talked about much, but it’s made far too often. Image thing: A business owner finds an image on Google, adds it to their website, and thinks nothing of it—until a demand letter arrives asking for payment for using the image without permission.

The solution is simple: Use royalty-free images from reputable sources or pay for the rights to use specific images. It’s a small step that can save you a lot of stress. You’d be surprised how often Canadian businesses receive cease and desist letters (from lawyers) demanding money for a website image.

Failing to Secure Your IP

Your intellectual property (IP) is one of your business’s most valuable assets. That includes everything from your logo to your website to whatever else you’re building.

A few common mistakes include:

Delaying the purchase of your domain name after searching for it (domains have a way of getting suspiciously bought up after searches).
Not having contractors sign IP assignment agreements, leaving the ownership of your IP unclear.

To help secure your IP, purchase your domain as soon as possible and ensure everyone that contributes to your business – whether a contractor designing your logo or an employee developing software – confirms you own the IP in what they create. Ensuring you own your IP not only avoids disputes but also makes your business more attractive to investors and partners.

Forgetting to Mitigate Risk with Insurance

Incorporating your business and using good contracts are excellent ways to reduce risk, but they aren’t foolproof. That’s where insurance comes in.

Insurance acts as a safety net for unexpected events, such as property damage and other liability claims. For example, even if your contracts are airtight, you could still face a lawsuit from a dissatisfied customer. Having the right insurance policy in place can protect you financially in those situations.

Think of insurance as part of a broader risk mitigation strategy. It works alongside your corporate structure and business contracts to give you peace of mind as you grow.

Forgetting to Open a Business Bank Account

Mixing personal and business finances is a mistake that many new entrepreneurs make. Not only does it create tax and administrative headaches, but it can also undermine the asset protection benefits of incorporating your business.

A separate business bank account keeps your finances organized and reinforces the legal separation between you and your company. It’s a simple step that goes a long way in protecting your business and personal interests.

Conclusion

Starting a business is an exciting and rewarding journey, but it comes with its challenges. By avoiding these common mistakes, you’ll set yourself up for success and save yourself a lot of unnecessary headaches along the way. And whether it’s drafting a shareholder agreement, filing a trademark, or figuring out your tax obligations, getting the right support early can make all the difference.

Ready to start your business?

Get in touch with a Canadian business lawyer today

Connor Macdonald