When to incorporate a business
There are various ways in which invididuals can carry on business in Canada. One of the ways is to incorporate a company to own the business. Whether a person should incorporate is both an accounting and legal decision. If the individual derives sufficient profits from the business and does not need to use all of the profits, the accountant may recommend that the individual incorporate a corporation to carry on the business. If the individual is concerned about personal liabilities, a corporation is a separate legal entity and removes the personal liability from the individual.
Provincial vs. Federal Incorporation
The decision to incorporate a company at the provincial or at the federal level is normally based on whether a corporate name is desired for the corporation and whether the corporation will carry on business in another country.
Incorporating at the provincial level
Regarding a corporate name, there is no watchdog at the provincial level, which makes it easier to obtain the desired name for the corporation. The onus is on the individual to ensure that the name does not contravene applicable legislation.
Incorporating at the federal level
It is more difficult to obtain your desired name at the federal level, because the name is compared against all other names, whether they are of partnership, sole proprietors or of other corporations across the country. Regarding the prestige, certain countries prefer to deal with a corporation that is federal. There are certain differences also at the compliance level. Otherwise, a provincial and a federal incorporation achieve the same result; a corporation, which is a separate legal entity.
Choosing a corporate name
A corporation can have a numbered company name or a corporate name. If the corporation is a numbered company, and the corporation wants to carry on business under another name, it is required to register a business name and obtain a master business license. The corporation must register a business name even if it wishes to use its corporation name without the suffix “inc., ltd. or corp.”. The failure to register a business name results in the corporation being in contravention of applicable laws.
Organizing a corporation
Once a corporation is established, then it must be organized. It is not sufficient to file articles of incorporation and open a corporate bank account. Certain documents must also be prepared such as resolutions and by-laws and shares must be issued. Additionally, director(s) must be elected and officers must be appointed. The corporation is also required to establish a financial year end. If the corporation is not organized, then it is in default under applicable laws. In addition to complying with applicable laws, the organization of the corporation allows individuals to benefit from the possibility of splitting income with another family member, such as a spouse or children that are of the age of majority.
What is a professional corporation?
There are special rules that apply to professional corporations. Professional corporations are corporations incorporated by professionals such as accountants, dentists and optometrists to carry on their professional business. Each profession’s governing body requires certain restrictions to be added to the professional corporation’s articles of incorporation and failure to comply with such requirements may lead to the corporation not obtaining its certificate of authorization required to carry on the professional business.
Voting shareholders of the professional corporation, which are the professionals themselves, do not enjoy the same removal of personal liability as shareholder’s of other corporations.
The incorporation is generally driven from an accounting perspective and allows the professional to leave money in the corporation and benefit from a reduced tax rate on that income as well as split income with their spouse or children, where the profession’s governing body allows for family members to be non-voting shareholders of the professional corporation.
SR Law Office has extensive experience with incorporating businesses of all sizes. If you are looking to incorporate a company in Canada, or if you are a professional seeking legal advice on creating a professional corporation, we would be happy to assist you.