INCORPORATION GUIDE

Here is your ultimate guide to deciding if you need to incorporate your business!

What are the different ways to start my business?

Choosing the right legal structure for your business is an important decision that can have significant implications on your business operations, taxes, and personal liability. There are several legal structures to choose from, including sole proprietorships, partnerships, corporations, and limited liability companies (LLCs), among others. Here is a brief overview of each structure:

1. Sole proprietorship: This is the simplest and most common legal structure for a small business. As a sole proprietor, you are the business, and you are personally responsible for all aspects of the business, including debts and legal liabilities. This structure is typically suitable for small, low-risk businesses with limited liability exposure.

2. Partnership: A partnership is a legal structure in which two or more people share ownership of a business. There are several types of partnerships, including general partnerships, limited partnerships, and limited liability partnerships (LLPs). Partnerships have similar characteristics to sole proprietorships, but with the added benefit of shared ownership and shared liability.

3. Corporation: A corporation is a separate legal entity from its owners, and it provides limited liability protection to its owners (shareholders). A corporation can raise funds through the sale of stock, and it can be taxed as a separate entity. Corporations are typically suitable for businesses with a higher risk profile or those that are seeking to raise capital through outside investment.

Choosing the right legal structure for your business will depend on several factors, including your business goals, the level of liability exposure, the number of owners, and the amount of capital needed to start and operate the business. It is important to consult with a qualified attorney and/or tax advisor before making a final decision on the legal structure for your business.

What are the advantages of incorporating my business?

Incorporating a business in Ontario, Canada can provide several advantages, including:

1. Limited liability protection: One of the most significant advantages of incorporating a business in Ontario is the limited liability protection it provides. As a separate legal entity, the corporation is responsible for its debts and liabilities, and the shareholders are typically only liable for the amount of their investment.

2. Tax benefits: Incorporating a business in Ontario can provide several tax benefits, including the ability to take advantage of the small business deduction, which reduces the corporate tax rate on the first $500,000 of active business income. Additionally, corporations can deduct business expenses, including salaries, benefits, and other expenses, which can help reduce their taxable income.

3. Credibility: A corporation can provide increased credibility for your business, as it suggests a higher level of stability, permanence, and organization than a sole proprietorship or partnership.

4. Easier access to funding: A corporation can issue shares to raise capital, which can provide easier access to funding than a sole proprietorship or partnership.

5. Perpetual existence: A corporation has perpetual existence, which means it can continue to exist even if the shareholders or directors change over time.

6. Easier transfer of ownership: A corporation's ownership can be transferred through the sale of shares, which can make it easier to transition ownership of the business to a new owner or to transfer ownership among existing shareholders.

It's important to note that while incorporating a business in Ontario can provide several advantages, it may not be the best option for every business. The decision to incorporate should be made after careful consideration of the business's specific needs and circumstances, and with the advice of legal and financial professionals.

If I want to incorporate my business, when should I start?

Deciding when to incorporate your business depends on several factors, including your business goals, financial situation, and potential risks and liabilities. Here are a few things to consider when deciding whether to incorporate now or later:

1. Liability: If your business involves significant risks or liabilities, incorporating your business can provide greater protection for your personal assets. This protection can help shield your personal assets from business-related debts and legal liabilities. Therefore, if your business is already generating revenue and exposing you to significant risk, incorporating sooner rather than later may be a good idea.

2. Taxes: Incorporating can also provide tax benefits, such as the small business deduction, which reduces the corporate tax rate on the first $500,000 of active business income. If you expect your business to generate significant profits, incorporating sooner rather than later may be beneficial for tax purposes.

3. Business goals: If you have specific business goals, such as raising capital or attracting investors, incorporating your business may be necessary. Many investors and lenders prefer to work with incorporated businesses as they offer greater protection and structure.

4. Costs: Incorporating your business comes with costs, including filing fees, legal fees, and ongoing compliance costs. If you are just starting out and have limited resources, it may make sense to delay incorporation until your business is generating sufficient revenue to cover these costs.

Ultimately, the decision of whether to incorporate your business now or later depends on your specific circumstances and needs. It is important to seek the advice of legal and financial professionals before making a decision. They can help you evaluate the pros and cons of incorporating and determine if it is the best option for your business at this time.

What is the difference between incorporating provincially or federally?

In Ontario, businesses can choose to incorporate federally or provincially. Federal incorporation is governed by the Canada Business Corporations Act (CBCA), while provincial incorporation is governed by the Ontario Business Corporations Act (OBCA). One of the main differences between federal and provincial incorporation is the scope of business that the corporation can conduct. Federally incorporated businesses can operate across Canada, while provincially incorporated businesses are limited to operating within Ontario. Another difference is the cost and time it takes to incorporate. Federal incorporation is generally more expensive than provincial incorporation, but it can offer benefits such as increased access to capital and more credibility with investors. Additionally, federal incorporation can take longer to process due to additional requirements and regulations.

What is a Professional Corporation? If I incorporate, do I need to incorporate a Professional Corporation?

A Professional Corporation (PC) is a corporation that is incorporated for the purpose of providing professional services. In Ontario, certain professions are regulated and require professionals to incorporate as a PC to provide their services. These professions include:

1. Accountants: Members of the Chartered Professional Accountants of Ontario (CPA Ontario) are required to incorporate as a PC to provide accounting services.

2. Dentists: Dentists in Ontario are required to incorporate as a PC under the Regulated Health Professions Act, 1991.

3. Lawyers: Lawyers in Ontario are required to incorporate as a PC under the Law Society Act.

4. Medical doctors: Medical doctors in Ontario are required to incorporate as a PC under the Regulated Health Professions Act, 1991.

5. Optometrists: Optometrists in Ontario are required to incorporate as a PC under the Regulated Health Professions Act, 1991.

6. Pharmacists: Pharmacists in Ontario are required to incorporate as a PC under the Regulated Health Professions Act, 1991.

7. Chiropractors: Chiropractors in Ontario are required to incorporate as a PC under the Regulated Health Professions Act, 1991.

8. Psychologists: Psychologists in Ontario are required to incorporate as a PC under the Regulated Health Professions Act, 1991.

If you are practicing one of these regulated professions, you are required to incorporate as a PC in order to provide your services. You cannot operate as a sole proprietor or a regular corporation. This is because the regulatory body overseeing your profession requires you to incorporate as a PC to ensure that the corporation is solely engaged in the provision of the professional services.

If you are not practicing one of these regulated professions, then you do not need to incorporate as a PC. You can choose to incorporate as a regular corporation or choose a different legal structure, such as a sole proprietorship or partnership, depending on the needs and circumstances of your business. It is important to seek the advice of legal and financial professionals to determine the best legal structure for your business.

If you are practicing one of these regulated professions in Ontario, you are required to incorporate as a PC in order to provide your services. It is important to seek the advice of legal and financial professionals to ensure that you are complying with the relevant regulations and requirements of your profession.

What is the difference between having a specific corporate name vs. having a numbered name for my business?

When incorporating a business in Ontario, the business can be named or numbered. A named corporation is a business with a unique name that is approved by the government, while a numbered corporation is a business with a number assigned by the government.

There are several benefits to having a named corporation, such as increased brand recognition and the ability to easily distinguish the business from competitors. However, there are also drawbacks, such as the cost and time it takes to come up with a unique name and get it approved. On the other hand, a numbered corporation is quicker and cheaper to set up, but it lacks the same level of branding and marketing potential that a named corporation has.

I want a specific corporate name, how do I know its available?

Choosing a corporate name is an important step in the process of incorporating your business in Ontario. Here are some key things to keep in mind when selecting a corporate name:

1. Unique and Distinctive: Your corporate name should be unique and distinguishable from other business names already registered with the province of Ontario. To search for existing business names, you must use the NUANS (Newly Upgraded Automated Name Search) system to ensure that your name is available. It is also recommended to do a general internet search to make sure that no other business is using a similar name that could cause confusion.

2. Descriptive and Memorable: A good corporate name should be easy to remember and should give some indication of what your business does or the industry it operates in. Avoid using generic terms that could be used by any business.

3. Not Misleading: Your corporate name should not be misleading or deceptive in any way. It should accurately reflect the nature of your business and the products or services you offer.

4. Compliant with Regulations: Your corporate name must comply with the naming requirements set out in the Ontario Business Corporations Act. For example, it must include a legal element such as "Inc." or "Incorporated" or their French equivalents, and it cannot contain certain restricted words or phrases without permission.

5. Check Availability of Domain Names: It is also important to consider the availability of domain names that match or closely resemble your corporate name. Having a domain name that is the same as your corporate name or closely related to it can help build your brand and make it easier for customers to find you online.

It is important to take the time to choose a good corporate name that accurately reflects your business and helps build your brand. It is also important to seek the advice of legal and financial professionals to ensure that your corporate name complies with all relevant regulations and requirements.

What are the requirements to incorporate a business?

To incorporate a business in Ontario, the following requirements must be met:

1. Business Name Search: The proposed name for the corporation must be searched to ensure that it is available and not too similar to any other business names.

2. Articles of Incorporation: The corporation must file Articles of Incorporation with the appropriate government agency, either Corporations Canada for federal incorporation or the Ontario Ministry of Government and Consumer Services for provincial incorporation. This is considered the birth certificate of the corporation.

3. Registered Address and Agent: The corporation must have a registered office address and a registered agent located in the province you register your business in, therefore if you register your corporation in Ontario, you must have a registered head office in the same.

4. Directors and Officers: The corporation must have at least one director, a President, Secretary, and Treasurer. The same person can hold all positions.

5. Shareholders: The corporation must have at least one shareholder.

6. Organizational Meeting: Once the corporation is incorporated, an organizational meeting must be held to appoint officers and directors, adopt bylaws, and issue shares.

What is a director of a corporation? What are a director's responsibilities?

A director is an individual who is elected or appointed to the board of directors of the corporation. The board of directors is responsible for managing the affairs of the corporation and making decisions on behalf of the corporation.

The responsibilities of a director in a private corporation in Ontario include:

1. Duty of Care: Directors have a duty to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances. This means that directors must take reasonable steps to inform themselves about the business and affairs of the corporation, and make decisions in the best interests of the corporation.

2. Duty of Loyalty: Directors have a duty to act honestly and in good faith with a view to the best interests of the corporation. This means that directors cannot use their position to further their own personal interests or the interests of other parties.

3. Duty to Avoid Conflicts of Interest: Directors have a duty to avoid situations where there is a conflict between their personal interests and the interests of the corporation. If such a conflict arises, directors must disclose the conflict to the other directors and, depending on the situation, may be required to recuse themselves from decision-making related to the conflict.

4. Duty to Act Within the Corporation's Objects: Directors must ensure that the corporation is carrying out its objects as set out in its articles of incorporation.

5. Duty to Comply with Applicable Laws: Directors must ensure that the corporation is complying with all applicable laws, regulations, and bylaws.

The obligations of a director in a private corporation in Ontario include:

1. Attendance at Meetings: Directors are required to attend board meetings and other meetings of the corporation as necessary.

2. Record-Keeping: Directors must ensure that proper records and books are maintained for the corporation.

3. Financial Reporting: Directors must ensure that the corporation's financial statements are prepared and submitted in accordance with applicable laws and regulations.

4. Fiduciary Duty: Directors have a fiduciary duty to act in the best interests of the corporation, which includes the duty to act honestly and in good faith with a view to the best interests of the corporation, and to exercise their powers and duties in the best interests of the corporation.

What are officers of a corporation? Which positions are required to be appointed?

In Ontario, officers are individuals who hold executive positions within the corporation, such as the President, Secretary, and Treasurer. The roles and responsibilities of officers may vary depending on the corporation and its specific needs, but in general, their duties include:

1. President: The President is the chief executive officer of the corporation and is responsible for managing the day-to-day operations of the corporation. This includes setting strategic direction, managing financial performance, overseeing staff, and making key business decisions. The President may also represent the corporation to external stakeholders such as investors, customers, and regulators.

2. Secretary: The Secretary is responsible for ensuring that the corporation complies with all legal and regulatory requirements. This includes keeping accurate records of meetings and resolutions, maintaining corporate documents such as the articles of incorporation and bylaws, and filing required reports and returns with government authorities.

3. Treasurer: The Treasurer is responsible for managing the financial affairs of the corporation. This includes maintaining accurate financial records, preparing financial statements, developing and implementing financial policies, and managing investments.

The obligations of officers in a private corporation in Ontario include:

1. Fiduciary Duty: Officers have a fiduciary duty to act in the best interests of the corporation, which includes the duty to act honestly and in good faith with a view to the best interests of the corporation, and to exercise their powers and duties in the best interests of the corporation.

2. Compliance: Officers must ensure that the corporation complies with all applicable laws, regulations, and bylaws.

3. Reporting: Officers are responsible for providing accurate and timely reports to the board of directors and shareholders, including financial statements and other reports required by law or regulation.

4. Communication: Officers must maintain open and transparent communication with the board of directors, shareholders, and other stakeholders to ensure that the corporation is meeting its goals and objectives.

What is a shareholder? And who can be a shareholder?

A shareholder of a private corporation in Canada is a person or entity that holds one or more shares in the corporation. Shares represent ownership in the corporation and entitle the shareholder to certain rights and obligations. Some of the characteristics, advantages, and obligations of a shareholder in Canada include:

Characteristics:

• Ownership: Shareholders are owners of the corporation and have an equity interest in the corporation.

• Voting rights: Shareholders have the right to vote on certain matters, such as the election of directors and major corporate decisions.

• Dividends: Shareholders may receive dividends if the corporation declares and pays them. Dividends are a distribution of profits or earnings to its shareholders. When a private corporation generates profits, it may choose to distribute a portion of those profits to its shareholders in the form of dividends. The amount of dividends paid to each shareholder is typically determined by the number of shares they hold in the corporation, as well as any preferences or rights attached to those shares.

• Limited liability: Shareholders have limited liability for the debts and obligations of the corporation.

Advantages:

• Potential for profit: Shareholders have the potential to profit if the corporation does well and the value of their shares increases.

• Limited liability: Shareholders are not personally liable for the debts and obligations of the corporation beyond the amount of their investment.

Obligations:

• Compliance: Shareholders must comply with all applicable laws, regulations, and bylaws.

• Paying for shares: Shareholders must pay for their shares as agreed upon in the share purchase agreement.

• Voting: Shareholders have the obligation to vote on certain matters that require their approval.

There are two types of shareholders in Canada: passive shareholders and active shareholders. Passive shareholders are those who simply invest in the corporation and do not take an active role in the management of the corporation. Active shareholders are those who are also involved in the management of the corporation.

There are different types of shares that can be distributed by a corporation, including common shares and preference shares. Common shares represent ownership in the corporation and give shareholders the right to vote on certain matters. Preference shares give shareholders certain preferences or rights over common shareholders, such as priority in receiving dividends or in the event of liquidation.

Any individual or entity can be a shareholder in a private corporation in Canada, subject to any restrictions or requirements set out in the corporation's articles of incorporation, bylaws, or applicable laws and regulations.

What are shares and what are the different type of classes of shares in a corporation?

Shares in a private corporation represent ownership in the company and can be bought and sold by shareholders and investors. When someone purchases shares in a private corporation, they become a shareholder and are entitled to certain rights and benefits, such as the right to vote on corporate decisions and the right to receive dividends (if declared).

There are different types of shares or classes of shares that someone can own in a private corporation, including:

1. Common Shares: These are the most basic type of shares and represent ownership in the corporation. Common shareholders have the right to vote on corporate decisions, receive dividends (if declared), and participate in the distribution of assets in the event of dissolution. Common shares may also be subject to certain restrictions or limitations, such as restrictions on voting rights or limitations on the amount of dividends that can be paid.

2. Preferred Shares: These shares typically have priority over common shares in terms of receiving dividends and assets in the event of dissolution. Preferred shares may also have other preferences or rights, such as the right to convert into common shares or the right to be redeemed by the corporation at a certain price. Preferred shareholders may or may not have voting rights, depending on the terms of the share agreement.

3. Non-Voting Shares: These shares do not carry voting rights but may still entitle the holder to receive dividends and participate in the distribution of assets in the event of dissolution. Non-voting shares may be used to raise capital without diluting the voting power of existing shareholders.

4. Redeemable Shares: These shares can be redeemed by the corporation at a certain price or on a certain date. Redeemable shares may be issued to raise capital with the understanding that the corporation will buy them back at a later date.

It's important to note that the specific rights and characteristics of each type of share or class of shares can vary depending on the terms of the articles of incorporation of the corporation. Additionally, corporations can issue multiple classes of shares with different rights and characteristics.

Do I need a 'Shareholders Agreement'?

While it's not a legal requirement to have a shareholders' agreement, it is highly recommended to have one if there are 2 or more shareholders who own shares in the corporation.

A shareholders' agreement is a legal document that outlines the rights, responsibilities, and obligations of the shareholders. It serves as a roadmap for the management and operation of the corporation and helps to prevent disputes between shareholders by providing a clear set of rules to follow.

Some of the key benefits of having a shareholders' agreement include:

1. Protection of shareholder rights: A shareholders' agreement can ensure that the rights of all shareholders are protected and respected. This can include the right to vote, the right to receive dividends, and the right to participate in the management of the corporation.

2. Dispute resolution: A shareholders' agreement can provide a framework for resolving disputes between shareholders. This can help to prevent costly and time-consuming legal battles that could harm the corporation.

3. Clear governance structure: A shareholders' agreement can establish a clear governance structure for the corporation, including the roles and responsibilities of directors and officers. This can help to ensure that the corporation is managed effectively and efficiently.

4. Protection of minority shareholders: A shareholders' agreement can provide additional protections for minority shareholders, such as requiring a supermajority vote for certain decisions or limiting the ability of majority shareholders to dilute their ownership stake.

5. Confidentiality: A shareholders' agreement can be kept confidential and does not need to be filed with the government, unlike the articles of incorporation and other corporate documents.

What if my business expands into other provinces, outside of Ontario?

If your business expands into other Canadian provinces outside of Ontario, you will need to register your corporation in each province where you will be conducting business. This process is known as extra-provincial registration.

Contact Amskor Law to see if this is necessary for you and your business!

Is there anything else I need to consider before or after incorporating?

There are a few additional factors you need to consider:

1. Business registration and permits: Depending on the nature of your business, you may need to register for additional licenses, permits, or certifications from various levels of government or regulatory bodies.

2. Contracts and agreements: Once your business is incorporated, you may need to enter into contracts and agreements with customers, suppliers, and other parties. It's important to have these agreements reviewed by legal professionals to ensure that they protect your interests and are enforceable.

3. Bank account: You need to open a separate bank account for your corporation, as a separate legal entity. Any finances, bills, and payments for the business now need to go through the corporation's own bank account and must be separated from the personal finances of its owners or directors.

4. Record keeping: As a corporation, you will need to keep accurate and up-to-date records of your financial transactions, including income, expenses, and taxes. It's important to establish good record-keeping practices from the outset to avoid problems down the road.

5. Corporate governance: As a corporation, you will need to comply with various legal requirements related to corporate governance, such as holding annual meetings, maintaining records, and filing annual reports. It's important to understand these obligations and ensure that you have the necessary processes in place to meet them.

6. Liability: While incorporating a business can provide some protection against personal liability, it's important to understand that there are still situations where you may be personally liable for the actions of your corporation. It's important to consult with legal professionals to understand your risks and take steps to mitigate them, such as getting insurance and creating a more advanced legal structure.

What do I need to do to maintain my company? Are there any legal requirements after incorporating?

After incorporating a business in Ontario, there are certain requirements that must be met to maintain the corporation, including:

1. Annual resolutions: Through a written resolution, the corporation must pass resolutions approving certain key actions, such as the appointment of directors, the appointment of auditors, and the approval of financial statements. These legal documents must be prepared and signed by the directors and the shareholders of the corporation every year. These should be created by your business lawyers.

2. Annual Filings: Both federally and provincially incorporated businesses are required to file annual returns and financial statements each year. These filings covers basic information about the corporation, such as its directors, officers, and registered office address.

3. Updating corporate records: As part of the annual compliance process, the corporation must update its corporate records to reflect any changes in its directors, officers, registered office address, or other key information.

4. Financial statements: Every Canadian corporation must prepare annual financial statements that comply with Canadian Generally Accepted Accounting Principles (GAAP). The financial statements must be audited or reviewed by an independent accountant, depending on the size of the corporation.

5. Tax filings: Every Ontario corporation must file a T2 corporate income tax return each year, even if it has no income to report.

6. Other regulatory requirements: Depending on the nature of your business, there may be other regulatory requirements that you need to fulfill each year, such as filing annual reports with industry regulators or complying with environmental regulations.

But don't worry! Amskor Law has you covered! We will assist in maintaining your business legal obligations and give you reminders of when your filings and documents need to be updated.

The content of this article is intended to provide a general guide to the subject matter and is intended for informational purposes only. The information does not constitute legal advice, or an opinion on any issue, nor create a solicitor and client relationship.

We would be pleased to provide additional details or advice about specific situations if desired. Do not hesitate to contact us for more information.

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