A corporation is a type of business ownership where the business is considered a separate legal entity from the owners of that business. However, the business will have the same rights as a person after incorporation.
To become a corporation, you would need to incorporate the business and receive the Articles of Incorporation for the new business entity. You are allowed to use your current operating business name for the new entity; however, a legal ending will need to be added. To ensure the proposed name does not conflict with an existing business, a NUANS report should be conducted to view any similar names that currently exist.
At the time of incorporation, you will have the chance to add individuals as directors to the business that were not able to under the sole proprietorship. There are other items that will need to be changed following incorporation, such as:
After changes have been made, you can cancel the current registration and items associated with it. Consider also obtaining an independent valuation on any assets that will be transferred over from the sole proprietorship to the corporation.
Provincially incorporating means your business will be conducted solely in the province you are incorporated in. The corporation would then operate under the provincial legislation of that region. This is the more time and cost-efficient option, which is attractive to small business owners.
It is important to note that your business name will only be protected within that province alone. You may face difficulties, extra costs, or need to use another name if you choose to expand your business into other provinces.
Federally incorporating means your business is allowed to be conducted across Canada. The business name will thus also be protected in all provinces and territories. You will however still need to incorporate in the province the business will be mainly operating from.
Though federal incorporation expands your regional limits, it is more expensive and time consuming as the initial cost is greater and there is more paperwork required.
Your corporate name cannot be identical or conflict with another existing corporation. Check that your proposed name is acceptable prior to starting incorporation.
The name itself has three parts to it: (a) a distinctive element (b) a descriptive element and (c) a legal ending.
Options for legal endings:
If you are unsure of the name or wish to speed up the process, you can choose to obtain a numbered name for your corporation (example: 12345 Canada Inc.). Afterwards a trade name can be registered which would be more identifiable to your customers when doing business.
Articles of Incorporation are issued to the business after incorporation. It is a legal document that includes the following information:
A sole proprietorship is a more basic business structure without a legal distinction between the business and those operating it.
There are 4 common reasons why people choose to incorporate:
(1) Limited Liability – Because the corporation is its own legal entity, your personal assets would be more protected and you would not be held personally responsible if anything troubling should happen to the business, such as a default or legal action.
(2) Raising Capital – There are certain government grants available when your business is incorporated, and this business structure is viewed favorably by angel investors. You can also sell shares as a corporation.
(3) Tax advantages – Some corporations have a lower tax rate than an individual. There are also tax deductions available, and it eliminates the need to transfer money to a personal account.
(4) Perpetual Existence – You can plan for the long-term and transfer ownership much more efficiently since the corporation will continue to exist until dissolved.
A corporate Minute Book is a collection of documents that track the company’s activities. It should include:
Some obligations include:
(1) Hold the first director’s meeting – the first directors are required to call for an organizational meeting of the directors to adopt certain resolutions regarding how the corporation will conduct business. There is a minimum about of notice that will need to be given.
(2) Hold a first members’ meeting – following the organizational meeting of the first directors, an organizational meeting will also need to be held for the members no later than 18 months after incorporation.
(3) Obtain any registrations – federal incorporations will need to register the corporation in the province or territory it will mainly be operating in. You may need to obtain an extra-provincial registration.
(4) File your Annual Returns – Your annual return confirms basic information about your corporation. If there are any changes, you will need to also file a Notice of Change. Annual resolutions will also need to be created which document the ongoings of the corporation in more detail than the annual return.
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