Steps To Incorporate a Business In Canada
Similar to other countries, Canada also offers different business structures to run any business operation. These business structure may be like sole proprietorship, partnership firms, trusts, corporation etc.
A corporation (also frequently termed as ‘Company’) is the most common business structure due to its advantages over the other business structure. Besides advantages of Corporation, the formation of a Corporation is also very smooth and friendly in Canada. For knowing more about the pros and cons of the Corporation and the process of setting up a new Corporation, read the following information explained in simple manner.
Incorporation of a Business:
In simple terms ‘Incorporation of a business’ means setting up or forming a Corporation / Company to undertake or run the desired business operation. For incorporation of a Company you don’t need many people, instead it can be formed with a single individual owner.
A status of ‘Corporation’ provides a legal entity / separate status to the company. In the eyes of the law, the Corporation is looked as a separate person (artificial person) from its owners or shareholders.
A ‘Corporation’ structure of Business has several advantages in Canada which always overweigh the few disadvantages:
Major Advantages of Formation of an Incorporation / Company in Canada
- Separate Entity – A Company / Corporation is a separate legal entity from its owner(s). The Company has its own identity and known by its name. It is a separate legal entity from its owners / shareholders
- Limited Liability – The Corporation is liable to pay off its debt and not the owners / shareholders. Even in case the company gets bankrupt, the owners / shareholders will loose maximum to the extent of value of equity invested by them in the corporation. The Shareholders are not personally liable for the corporation’s debt.
- Lower Tax Rates – The tax rates applicable to a Corporation in Canada are much lower than individual tax rates. The Taxes of the Incorporation depends upon the province of jurisdiction. For e.g. generally in the case of a Canadian Controlled Private Corporation (CCPC) having Ontario jurisdiction, the final applicable tax rates shall be as low as 12.2% subject to certain conditions (i.e. Federal - 9.0% plus Ontario - 3.2% aggregating 12.2%)
- Easy to raise funds – A corporation can arrange funds by issuing shares (common shares or preference shares) or bonds. The Corporation can also borrow funds from the Financial Institutions at lower rates. Besides borrowing from Financial Institutions, a Corporation can also apply for various grants, subsidies and other support schemes offered by federal and provincial government from time to time.
- Continuous Existence – A Corporation has its own separate existence and will continue to live until it is wind up, dissolved or amalgamated. Shareholders may come and go or even die, the existence of the Corporation never ends ups with the death of its shareholders.
- Low cost of Incorporation – A corporation can be incorporated in Canada with a fee as low as two hundred dollars only.
Steps of Incorporation:
- Jurisdiction of the Corporation
The first and foremost question in formation of a Company is what type of Incorporation it should be. Canada offers 2 types of Incorporations (i) Federal Incorporation and (ii) Provincial Incorporation.
The selection of type of company primarily depends on the choice how one would like protect the proposed business name of the incorporation. A Federal Incorporated company’s name is protected across the Canada whereas Provincial incorporated company business name is protected within the province of incorporation.
Although the business (Corporation) may have been incorporated in a particular province say Alberta but there is no restriction on doing the business in other provinces or territories like Ontario. The only important requirement is to get the extra-provincial registration for the other provinces in which the Corporation wants to do the business.
- Name of the Incorporation
Once the jurisdiction of incorporation is decided, the next step comes is choosing the desired name of the new company.
Canada offers to register the incorporation as a ‘numbered company’ instead of a ‘name company’, which is much easier and faster. A numbered company is a company in which instead of name, a number shall be assigned to the incorporation. The company will be known from that number followed by words like Canada Inc. (in case of Federally incorporated) or Ontario Inc. (in case of incorporated in Ontario province) , which is assigned at the time of registration.
In case of named companies, the selection of name must comply with the certain rules and guidelines prescribed in this regard. It is utmost important that name should not be similar to any already existing corporation and is available.
- Location of business
After deciding the name, the next is the registered office of the Incorporation place of business. The registered office of the corporation is the place where the company keeps its corporate records and other official mails, letters, documents etc. shall be served on the company. The company may provide additional address for service of documents like address of a CPA or Lawyer.
- Directors of the Corporation
The Corporation has to choose the number of minimum and maximum directors of the proposed corporation. A Company must have atleast one director and may fix any maximum number of directors at the time of Registration. The minimum and maximum directors are significant information which forms the part of Articles of Association. However it is open for the company to change the minimum and maximum number of directors after the incorporation of the company by passing the necessary special resolution of shareholders to amend the Article of Association.
In case of Federal incorporation, it is important to have atleast 25% of the directors as Canadian residents. However in certain business sector incorporations, it is important to have majority of directors as Canadian residents.
The name of the first director of the company and other details are mentioned in the Articles of the Incorporation.
- Class of Shares and number of Shares
The Articles of the Incorporation set out the classes of shares and the maximum number of such class of shares that the company is authorised to issue. The company can fix any number of shares or may delimit the same by authorizing to issue unlimited number of shares.
The Articles can allow any number of classes of shares which a corporation can issue. However if there are more than one class of shares then Articles must state the right, privileges and restrictions attached to each class of shares.
A corporation may change any class of shares or conditions attached to any class of shares by amending the Articles of the Corporation by passing a special resolution of shareholders.
- Articles of Association of the Corporation
The simplified method of incorporation of a numbered company for the small corporation is to adopt the pre-determined Articles of Incorporation, offering one class of shares and a maximum of 10 directors. The predetermined Articles help in quick incorporation of the company.
However if the proposed company desires, it may choose and create its own articles by incorporating its own clauses, classes of shares, restrictions on issue and transfer of shares, other conditions and restrictions etc.
- Pay the Fees
Once the above formalities are completed, the next step is the payment of requisite fee for the incorporation. The fee varies from province to province and federally. The federal incorporation fee is as low as @200 for a simple numbered corporation.
- Extra-Provincial Registration
The Registration process with the province is a separate step from the incorporation. In case a Corporation is formed federally, it needs to be registered with the province where the corporation wants to do its business / operations. Even a Provincial Corporation, if it wants to carry on business in provinces other than province of incorporation then the corporation is required to get the registration with the said province.
- Certificate of Incorporation
As soon as the payment of fee and other formalities are complete, the certificate of Incorporation is generally issued without any delay in case of numbered corporation. However in case of federal named incorporation, it may be issued after verification of name and other compliances. To know more about this connect with Account Tax Pros team.
- Getting a Business Number
Now as far as the incorporation is complete and certificate of Incorporation is also is in hand, the next step is to get the Business number of the Corporation. The Business number is the unique number of the incorporation issued by Federal Government which creates the identity of the corporation with the CRA and is also used for other registrations like HST / GST, Payroll Deductions, Corporate Income Tax, Import and Exports
- Other registration / compliances
Depending upon the nature of business or the investment in the incorporation like foreign investment etc. a corporation may have to comply with some additional requirements. There may be certain other formalities which may be done before starting your operations. For example in case of non-Canadian, who acquires the control in the new incorporation, may be subject to Investment Canada Act have to file a notification of the investment or commencing business of a restaurant may require license / permit for serving the liquor.
- First Organizational Meeting / Board Meeting
After formally incorporation of the business, the first and foremost thing is to calling of a Board meeting of first directors to transact the following business:
- To make the by-laws of the corporations, which shall be placed before the shareholder’s meeting for their approval.
- To adopt / get the share certificate approved
- To authorise issuing of share certificates to shareholders on receipt of share capital
- To appoint the officers of the corporations
- To pass the resolution for opening of bank account and other necessary banking arrangements
- To transact and pass any other resolution which may be required, as may be required