I Currently started working on a new project along with 6 other people.
We want to create a business bank account In Ontario, so that we can each put in some amount of money as an initial investment to start our business.
Looking into it we found that we need to register our business before we can open this bank account. We don't want to register our business until we proved our concept.
But we also want to make sure that if we all invest now we won't have any arguments such as people leaving and claiming shares or something along those lines.
What do you guys recommend that we do?
we are hoping for a cheap solution if possible
Thanks in advance :)
Legal process exists for good reason. If you want good investors later, you will have to start out correctly. If you cannot afford to incorporate, don't go into business. Earn enough to pay for the costs of doing it right, then do it right.
I have been in a similar situation when I started. I also avoided it for 12 months, it came back and "bit me in the ass" :-)
Best advise to avoid problems later (also among partners) is simply get the company registered.
It can be done for $ 200 (which can be much when starting), but do it.
You also want the track record later.
And it is a good test for yourself to see if you are serious.
Do it as a Inc with 1,000 shares to stay out of tax (maybe diff in Canada).
In the price you get all the simple docs you need.
Besides among yourself make a one page (just one page) that tells:
- Main purpose of business (making the formulation you will see if you really agree).
- Shareholder names and how much each own = number of shares (if it does not match with 1,000 shares then make it another total share number that match).
- Main responsibility (work area) of each person.
And each person signs it, something just happens when it goes down on paper (you start taking it more serious or find out it will not last......), it is your first real test.
That is really my frank advise, from numerous past experiences where I did mistakes.
I would recommend that someone open an account at a bank only for this purpose and incorporate the others with the same rights into the account. I do not know if in Canada you have 100% bank account free of fees like fintech, if you have it is a great alternative.
You guys should go for private joint account to track your money and have a safe pool of investment, on the other hand i suggest you start working on your project without any delay legal process and business registration can delay until to get settled with your business in future and then you can open your official business account.
Hoping a great future for you!
Doing corporate governance cheap is a downfall of small companies. It does not have to be expensive, but if you have a $1 mm idea, it is worth a few thousand to make sure the company (the structure that supports the idea) is sound. Fights between original "partners" (a term used when things are going well) become lawsuits (when things are not going well). No company is going to always do well. Plan for how it is managed in advance.