Incorporating your business in Canada effectively ensures that your company has all of its legal rights and responsibilities.
Doing this can provide several benefits, such as limited liability protection, tax advantages, and access to additional capital sources.
Let’s look at the essential steps to incorporate your business in Canada.
What is Incorporation?
Incorporation refers to forming a separate legal entity, known as a corporation, which is distinct from its owners.
When a business incorporates in Canada (or anywhere else), it becomes a separate legal entity, with its own rights and liabilities.
This means that the corporation can own property, enter into contracts, sue and be sued, and conduct business independently of its owners.
The corporation’s owners are known as shareholders, and they own the company through shares of stock.
Shareholders elect a board of directors responsible for making major business decisions and appointing officers to manage the corporation’s day-to-day operations.
Incorporation can provide various benefits, such as limited liability protection, which means that shareholders are typically not personally responsible for the debts and liabilities of the corporation. Additionally, corporations can raise capital by issuing stock, which can be sold to investors.
Related: What is a Small Business in Canada?
Reasons to Incorporate in Canada
There are several reasons why a business might choose to incorporate. Some of the main reasons include the following:
Limited Liability Protection
Incorporation provides limited liability protection to the business owners.
This means that the owners are not personally liable for the debts and obligations of the corporation. Instead, only the corporation’s assets are at risk.
This can protect the owners’ personal assets event of a lawsuit or other legal action against the corporation.
Corporations can take advantage of various tax benefits, such as deducting business expenses and paying lower tax rates on some types of income.
Additionally, corporations may be able to offer employee benefits, such as health insurance and retirement plans, which can be tax-deductible.
Incorporation can provide a business with increased credibility and legitimacy in the eyes of customers, suppliers, and investors.
A corporation is a separate legal entity, making it easier for a business to secure financing or attract investment in Canada.
Transferability of Ownership
Ownership in a corporation is typically represented by shares of stock, which can be bought and sold.
This can make it easier for business owners to transfer ownership or raise capital by selling shares to investors.
A corporation has perpetual existence, meaning it can continue to exist even if the original owners or shareholders pass away or leave the company.
This can provide greater stability and continuity for the business.
Preparing to Incorporate a Business in Canada
a. Choose Your Provincial or Territorial Jurisdiction
Choosing the right provincial or territorial jurisdiction is important in incorporating a business in Canada.
Certain provinces may have specific restrictions and taxes that need to be considered depending on the type of business.
For example, if you are incorporating a non-profit organization, then Alberta or British Columbia may be the best choice.
Consider where your customers will be located, as this will help determine which province offers the most advantageous taxation laws for your company.
Ensure that any licenses required by your company are accepted in that particular province or territory before making a decision.
AND it is wise to research any other related regulations specific to that area such as access to public funding and work permits for foreign employees if applicable.
b. Choose Your Business Name
Your business name is valuable real estate and should represent the values and mission of your company, while also being memorable to potential customers.
A few factors to consider when deciding what name works best for you.
You can choose a descriptive name that clearly explains what your business does—such as “Smith’s Bakers”—or an abstract one, like “Apple” which paints a more creative picture for customers.
Make sure to do research on similar businesses in the area and online, as well as confirm that there are no copyright issues with the proposed name.
Also keep in mind that if you want to register with Corporations Canada, some words such as ‘bank’ or ‘university’ will require additional paperwork and licensing before incorporating them into your business title.
c. Choose Your Directors
When incorporating a business in Canada, choose the right directors.
Directors are responsible for the corporation’s management and must be 18 years of age or older.
They are appointed by the shareholders and remain in office until they resign or are removed from office by shareholders.
Selecting directors with qualities such as knowledge, experience, leadership potential, and trustworthiness is important.
Business owners should look for individuals who bring a different set of skills to the board table.
It can also be beneficial to have people with expertise who can offer guidance regarding financial matters, legal affairs, marketing or other areas related to your industry.
Additionally, having a few members with local connections can be advantageous if establishing contacts and relationships in the region is required for success.
Ultimately, choose qualified individuals who will work harmoniously to achieve common goals.
d. Prepare Articles of Incorporation
This document sets out the basic parameters of the corporation and is filed with the government to obtain legal status as an incorporated business.
It must include information such as names of directors and shareholders, registered office address, the purpose of operations and the name under which it will operate.
When drafting this document, include all necessary information accurately.
Additionally, you should ensure that your Articles conform to any requirements set out by your province or territory; for example some provinces require additional information, such as classes or rights attached to shares or limits on directors’ liabilities.
Once completed and signed off by those involved in creating it, you can then file it with the provincial or territorial government agency responsible for registering corporations.
Incorporation Process in Canada
Step 1: Name your corporation
When incorporating a business, the first step is to decide on a corporate name that legally identifies it.
This name must comply with the jurisdiction’s legal requirements in which the corporation will be registered.
Your corporation can have either a corporate:
- word name, made up of letters and symbols; or
- numbered name, for example, 12345678 Canada Inc.
The simplest way to incorporate your business in Canada is to use a numbered name assigned by Corporations Canada.
However, if you want to use a specific word name for your corporation, you can choose the custom incorporation option when incorporating online.
This will give you the legal right to use that name across Canada once Corporations Canada has approved it.
Step 2: Create your articles of incorporation
Creating a corporate structure for a small, private business can be simplified by opting for basic incorporation.
This can help take the guesswork out of the process, and your corporation will have the following:
- pre-determined articles of incorporation (you can amend them later, as needed)
- one or two classes of shares
- a maximum of 10 directors
- an assigned, numbered corporate name.
If you opt for custom incorporation, tailor your articles of incorporation to fit your specific business requirements.
In that case, have the following:
- your corporate name
- your share structure and any restrictions on share transfers
- your corporation’s number of directors
- any restrictions you might want to set for your business or business activities
- any other provisions.
Language of the articles
The articles of incorporation can be drafted in the language of your preference.
They can be:
- in either official language (English or French)
- in both official languages (English and French)
- bilingual (using both official languages equally).
Step 3: Create the initial registered office address and appoint the first board of directors.
All incorporated businesses in Canada must have a registered office address and a board of directors.
This address is to be used for official documents to be served upon the corporation and where corporate records are to be kept.
When selecting a registered office address, ensuring the corporation can receive documents is important.
For the board of directors, it is necessary to check the requirements and make sure they meet the eligibility criteria.
When incorporating a business in Canada, it is necessary to disclose first and last name, and address of each directors.
And whether or not they are resident Canadian.
Step 4: Submit and pay the fee
You are almost done.
Submit your incorporation application and pay quickly and easily through this Online Filing Centre.
And the cost of incorporating a business in Canada is $300 CAD online or by mail.