Starting Up Smart

Starting Up Smart: Legal Insights for Entrepreneurs

Starting a new business can be both exhilarating and overwhelming. You’ve likely spent a significant amount of time developing your business idea and are now looking for ways to market your product or service to the public. You may have begun to investigate the differences between corporations, sole proprietorships, and partnerships, and are not sure what the right choice is for you. You may have other questions, such as: should I collect sales tax for my business? How should I structure my business? What should I do when there are multiple business partners involved? What kinds of agreements do I need to have in place, and by when?

Entrepreneurs must make many legal decisions throughout the lifecycle of their business. In this article I hope to guide you in the right direction, so you can launch your startup with all the necessary provisions and protections in place, giving you the best chance for success.

Business Structures

Every business needs a structural framework from which to operate. When deciding how to structure your business, you must consider numerous factors, including:

  • Investors or third-party involvement
  • Business continuity
  • Tax implications
  • Amount of income and expenses

For example, if your startup is initially not making many sales, but you are incurring a lot of development expenses, then a sole proprietorship may be more suitable for you, given that those expenses can offset your other personal income. Sole proprietorships also offer simpler tax and accounting procedures than a corporation but may also leave you vulnerable to personal liability if something goes wrong in the future.

If your plan is to involve investors or if you are securing loans from friends or family, then it may be advisable to incorporate. Incorporation offers business continuity, which means that your company can continue to exist even if you are no longer operating it (unlike a sole proprietorship). If you plan to sell your business at any point in the future, a corporation structure is necessary.

If you decide to incorporate, you will want to speak with a qualified chartered accountant to ensure that the corporation is setup in accordance with your personal tax and family situation. Accountants can advise you on certain strategies that will maximize tax efficiency while minimizing out-of-pocket costs. You may also need to register for a GST and/or a PST account depending on your annual sales, which your accountant can assist you with. At Hamilton Duncan, we diligently work with a number of excellent chartered accountants and can confidently provide you with a suitable referral.

Shareholder Agreements

Startups with two or more partners often underestimate the importance of shareholders’ agreements. It may feel like an unnecessary expense when funds are tight at the beginning, but in fact it is the best time to consider it. Indeed, when partner relationships are still strong it will be easier to hash out the terms of your agreement to ensure everyone operates on the same page without conflict. This important document can potentially save innumerable expenses down the road, as shareholders’ circumstances and relationships may change over time.

A typical shareholders’ agreement addresses:

  • Roles and responsibilities
  • Raising of funds
  • What happens in the event of a shareholder’s death, disability, breach of the agreement, or bankruptcy
  • Restrictions on selling shares to third parties
  • Right of first refusal
  • Key man insurance
  • Anti-dilution provision
  • Conduct and meetings of shareholders and directors

A shareholders’ agreement can be tailored to address any unique situations that may arise between business partners to ensure accountability on all sides.

Initial Agreements

When operating your business, especially during the initial stages, the last thing you want to have is an unexpected lawsuit or claim made by a customer, employee, or contractor. To protect yourself against these uncertainties, we recommend the following types of agreements that may be applicable to your situation:

  • Employment agreement
  • Independent contractor agreement
  • Services agreement
  • Website terms of service
  • Website privacy policy
  • Distributor agreement
  • Software development agreement
  • License (intellectual property) agreement
  • Lease agreement

While every case is different, generally speaking, if you’re hiring individuals to help operate your business, or hiring a third party to assist you with managing aspects of your business, you will want to ensure the proper agreements are in place to avoid costly disputes. Clear terms and policies explained at the outset will ensure that you are protected in the long run; especially when your business grows and expands locally, nationally, or even internationally through the years.

Choosing the Right Lawyer

Choosing the right lawyer to help you with your venture is no simple task, but keeping the following factors in mind will help you make the right selection for you and your business. It is important that things get done correctly the first time, and that there are no surprises. At Hamilton Duncan, we have assisted numerous clients who did not get the right guidance up front for one reason or another, and ended up having to come to us to fix costly issues that could have been avoided. This is especially true with clients who tried to handle things themselves, without the involvement of a qualified legal professional.

Here are a few useful tips to consider when choosing a lawyer:

  • Is the lawyer’s experience and background compatible with your legal needs? For example, if you have to negotiate a confidentiality agreement, does the lawyer have expertise in the field of business agreements, rather than say, a background in family law? Similarly, if you are a technology startup, does the lawyer have expertise in this area to ensure your specific requirements are proactively addressed?


  • Consider whether the law firm you choose initially can grow with your company. Does the lawyer have the broad-based experience and team support required to take your business as far as you want it to grow? Choosing a full-service law firm or a law firm with multiple practice areas may be advisable when unexpected issues arise, such as litigation.


  • Does the lawyer provide prompt and courteous responses to your questions, and are they someone with whom you would be comfortable working? Quality communication between you and your lawyer is the key to ensuring that you are on the same page and have the same goals in mind and will minimize the likelihood of costly misunderstandings. Developing and maintaining a positive working relationship with your lawyer will make you feel more empowered and confident about your business and will also make the journey ahead a more enjoyable one.


To ensure that your startup has the best possible chance for success you must not only work hard, but you must also work smart. You will never regret enlisting the support of key trusted advisors to guide you along the sometimes stressful, but often fulfilling path towards running and operating your own business.

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Starting Up Smart, Anand Athiviraham

Anand Athiviraham is a Partner at Hamilton Duncan Law Corporation and focuses on advising entrepreneurs at all stages of their business. He has extensive experience working with both startups and established businesses to ensure their corporate legal needs are fully addressed throughout their growth. To learn more about Anand or to contact him, visit his profile on our website.

This article “Starting Up Smart” is for general information purposes only, and is not legal advice. Readers should not act based only on general information or neglect to seek legal advice because of it. Proper legal advice is highly dependent on the facts of each particular case, and the lawyers at Hamilton Duncan would be pleased to discuss your situation with you and to provide you with advice specific to it.