A Guide to Incorporating Your Small Business

Incorporating a business in Canada means creating a corporation or company that exists a legal entity, separate from its shareholders and directors. While it’s not legally required, incorporation can offer benefits over sole proprietorships and partnerships, such as tax deductions and limited liability protection, keeping your personal assets clear from any debts your business may face. Additionally, it can boost your credibility with clients and help you raise money through sales of shares or equity.

Where should I incorporate?

A corporation is created by the approved filing of Articles of Incorporation at either the provincial or federal level, and it’s important to make the right choice between the two. A company incorporated at the federal level can conduct business operations all across Canada, or simply within a single province. A company that files provincially, however, is restricted to doing business in that province unless it obtains additional licences. Think about the future of your business before you make your decision.

Federal incorporation tends to cost more and requires more frequent filing of corporate reports than provincial filing. Also be aware that your corporation may have to satisfy residency requirements for its directors, a certain percentage of whom must be Canadian. Not all provinces have such requirements.

How will my corporation be structured? What rules will I need to follow?

Once created, your company will have one or several shareholders who control the corporation through the appointment and removal of directors, and the approval of major decisions. The directors, in turn, oversee the company’s officers, who manage the day-to-day business.

If you choose to incorporate, you’ll have to pay the fees associated with the filing, appoint directors, hold meetings with shareholders and the board of directors, establish bylaws and maintain corporate records so you can provide reports to your shareholders and file annual returns. As well as filing a corporate income tax return, you’ll also be required to make updated filings whenever you change directors or your company’s registered address.

Federal corporations may hold their board meetings anywhere in the country, while provincial corporations must hold their meetings in the province where they are registered.

What should I call my corporation?

Make sure the name you plan to use for your company is available and not registered to anyone else. Try to come up with something that combines a distinct name or location and a brief description of the business you’re in. Remember, you’re hoping this name will last for a while. Be aware that you likely won’t be approved for any name that tries to mimic a competitor.

To simplify the naming process, you can choose to become a numbered corporation (ie. 123456 Canada Inc.) and then register a trade name to use with clients and customers. Your legal matters and contracts, however, will have to be done under the proper company name. Some business owners feel this diminishes the prestige associated with the company name.

Do I need an attorney to incorporate?

Legally, you don’t need an attorney to incorporate your business. Still, it’s a complex and challenging process with serious implications for your company’s future, so it’s wise to seek out some professional advice. The time and money you spend now to make sure everything is done correctly will be worth it down the road as your business grows and changes. Take the time to fully understand your options, as well as any potential benefits that incorporation can offer.

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