A corporation is considered by law to be a unique entity, separate from its owners. It can be taxed, sued, can own property and can enter into contractual agreements at either the federal or provincial level. Terms that identify a corporation include “Limited”, “Ltd.”, “Incorporated”, “Inc.”, “Corporation”, or “Corp.” One of these must be included in the name of the company and must appear on all documents and stationery of the company.
Owners of a corporation are its shareholders, who can’t be personally liable for debts or obligations of the corporation and can’t claim any loss the corporation might experience. Shareholders should have a Shareholders’ Agreement in place to protect them and resolve disputes.
A board of directors is elected by the company’s shareholders to oversee major decisions. One of the great things about corporations is that the company doesn’t dissolve when ownership changes.
The different types of corporations
There are three possible types of corporations, including private, public and federal. A private corporation can be formed by one or more people, but the majority of its directors must be Canadian residents, including a resident of the province in which the company operates.
A public corporation, however, issues securities to the public through the stock markets. Public corporations must file incorporation documents in addition to a prospectus with the Securities Commission in their province. This type must also send out semi-annual financial statements to their shareholders and employ outside auditors.
Finally, federal corporations must register in each province that they do business and may be incorporated federally under the Canada Corporations Act. You’ll have to file your Articles of Incorporation (including your share structure, directors, and name search) under the Business Corporations Act in order to get a Certificate of Incorporation.
How to form a corporation in Canada
Forming a corporation will take a great deal of paperwork, filing and certification to be done properly. It can take a few weeks to complete, so allow yourself sufficient time to get this process done right.
There are a few ways to complete this process, including online, through hiring a lawyer, or by doing it yourself in person. Prices vary, with hiring a lawyer being the most expensive way of completing this process.
Incorporated companies may also be purchased online for as little as $200. The incorporation process is highly recommended, especially due to the fact that it can be done yourself relatively inexpensively.
As mentioned before, you will have to be registered in each province in which you do business. You will have to check the availability of your chosen business name before becoming incorporated.
There are a number of items to obtain in order to become incorporated. You’ll require a minute book, articles of incorporation, and a certificate of incorporation. The minute book will be a binder with many tabs including all of the required documentation for your corporation. These tabs include the following items:
- Financial statements: Balance sheets and income statements for the company.
- Banking resolutions: resolutions are records of all of the major decisions that are made fo the organization. For example, if you wish to obtain a corporate credit card, a resolution must be written up and signed by company directors in order to document this decision.
- Contracts: All of the contracts that your corporation has in place.
- Shareholder meetings: information regarding the frequency of meetings including minutes.
- Directors’ register: Listing of all company directors including contact information.
- Securities register: Listing of all company shares issued. Blank share certificates will have to be purchased and you will have to decide how many shares of your business will be issued, as well as how much each share will be worth. We suggest getting an accountant or lawyer’s advice on share values and issuance. Make sure that payment is received for each share in order to leave a trail for auditing or in case the company is sold in the future.
- Annual reports: the company’s annual reports.
- Directors’ meeting minutes: minutes from director meetings.
- Bylaws and amendments: this is a very important component of the minute book, which may or may not be included if you choose to buy an online incorporated company. This Unit lays out how the business is run including things like how officers are elected. If these are not included in the process that you’ve chosen to incorporate your company, you will have to hire a lawyer to have these written.
- Shareholders’ ledger: Details of the share issuances or transfers to and from the shareholder. Also includes contact information for shareholders.
- Shareholders’ Agreement
- Articles of Incorporation: You must be registered either provincially or as a corporation in Canada. This information will be files with a regulatory agency and provides information such as the corporations name, the board of directors, the purpose for which the corporation was formed, the number of shares as well as the rights and restrictions pertaining to each class of shares, listing of directors, corporation restrictions, names and addresses of incorporators, signatures and any other provisions.
- Certificate of Incorporation: issued by the government as confirmation of the incorporation.
Benefits of hiring a lawyer include a full service minute book with printed tabs, certificate of incorporation and share certificates. However, hiring a lawyer may not be affordable for a small business in the start-up stages. If you choose to complete this process yourself, we suggest having your lawyer or accountant review your process in order to be certain that everything has been accounted for.
Keep in mind that every major decision must be recorded and kept in the corporation’s minute book. Although this can be very frustrating for business owners, as the paperwork is doubled with T2 Corporate Tax Return and minute book requirements, the incorporation process helps to limit the liability of the corporation.
Watch for future blog posts to find out what goes into a Shareholders’ Agreement, and the perks and snags of corporations.