Incorporating a Company
Though only one among the various means of carrying on business, a corporation is usually the vehicle of choice.
A company can be incorporated provincially, or federally. An Ontario corporation can carry on business in Ontario under its corporate name and can apply to carry on business in other provinces, under that name. A federal corporation can carry on business anywhere in Canada under its corporate name, but may have to register the name in each province in which it carries on business. We would be pleased to discuss you the other differences between incorporation in Ontario, and federally.
There are numerous advantages to incorporating, the most significant of which is that a corporation is a legal entity separate and apart from its shareholders. As a result of this distinction, the corporation, and not the individuals behind it, owns and operates the business, and incurs the liabilities. A shareholder’s financial risk to creditors is therefore limited to the amount of his or her investment, within the jurisdiction of incorporation. A corporation has the potential for a perpetual existence, as it can survive the death or resignation of a shareholder, director or officer. Corporations are taxed at a lower rate. A corporation is a good estate-planning vehicle, as it can allow the owner to control the business, while passing on equity growth to future generations.
Some disadvantages to incorporating include the need, if required, to provide a personal guarantee in order to obtain bank financing. Annual filings are required, and annual resolutions must be passed. A fee is charged for annual filings for federal corporations. Corporate income can potentially be taxed twice: once at the corporate rate in the hands of the corporation, and once at the applicable individual rate in the hands of the shareholders receiving dividend distributions. When a corporation consists of multiple shareholders, a shareholder agreement is usually recommended, to clearly establish the relationship among the shareholders, and to provide an agreed-upon exit strategy.
Information We Need to Help You Incorporate:
- Proposed corporate name, unless the corporation is to be a numbered company.
- Name(s) and residency of the director(s). As a general rule, at least 25 per cent of the directors must be resident Canadians.
- Name(s) of the shareholder(s) and officer(s), and the position each officer will hold.
- Share structure, and share attributes.
- Signing authority, and any special arrangements for execution of agreements.
- Fiscal year-end.