Wondering how to incorporate your business in Canada? Let’s find out the general steps involved to set up a corporation in Canada.
1. Decide if you need to incorporate your business?
A lot of times people just go and incorporate their business without carefully considering multiple factors. Incorporating the business is one of many legal forms of doing business. You do have the option of whether to operate as an unincorporated business or incorporate it. An unincorporated form of business such as sole proprietorship or partnership has far fewer requirements as compared to having a corporation. A corporation is treated as a separate legal person, however, it does give personal liability protection as opposed to an unincorporated form of business.
Carefully analyze your circumstances and decide whether you need to incorporate your business or not! If needed consult a professional accountant providing corporate and personal tax services.
2. Decide whether to incorporate federally or provincially
Once you decide whether to incorporate your business or not, the next step is to decide the jurisdiction under which to incorporate it. In Canada, you can incorporate your business either at the Federal level or provincial level.
Federal incorporation allows you to run a business under the same name in all territories and provinces. The federal corporation is recognized as a Canadian corporation. It is usually considered that federal corporations provide corporate name protection next to trademarks. Federal corporations need to register with each province in which they tend to operate, called Extra-Provincial Registration. Depending on the province, the province may charge an extra-provincial fee. For example, the province of Ontario does not charge any fee whereas the province of Alberta does.
Provincial corporations are incorporated under the provincial corporation’s acts. They are easy to set up and the name approval process is very easy.
A common misconception is a federal corporation is expensive than the provincial once. This is simply not true always. In fact, in Ontario setting up a federal corporation is much cheaper than a provincial corporation since Ontario does not charge any extra-provincial registration fee. In the case of the province of Alberta, there is an extra-provincial fee which makes federal corporations an expensive choice there.
For example, if you’re setting up a one-person or small company and planning to run business in one territory, for now, there is perhaps no need to incorporate federally. You can always incorporate your company in another territory as your business grows. If you are looking to do business internationally or in multiple territories, consider registering at a federal level.
There are no differences in corporate income tax filings or tax treatments!
3. Reserve a Corporate Name
Regardless of where you incorporate your company in Canada, you need to conduct a name search to find out the appropriateness of the corporate name you’ve selected. If you’re incorporating your business federally, or in provinces like Ontario, you need to conduct a NUANS search and then submit the resulting NUANS report with your articles of incorporation.
To incorporate your business in Canada, you will need to come up with a unique name for your corporation. For federal incorporation, the name needs to be unique against a more extensive database compared to provincial incorporation. At the federal level, the name is approved by the Corporations Canada before issuing a certificate of incorporation. Provincial corporations in Ontario can choose a name and reserve the same. If this is not an exact match, the name will be granted. Be careful, if your name is confusing with another business, you may be called for a name hearing if the other party decides.
As a general tip, you should make google searches, check availability of social media handles and domain names before deciding on the name.
You can always choose a numbered corporation where a number is assigned by the corporate registry.
4. File Articles of Incorporation and Initial Returns
In most cases, two documents need to be filed.
- Articles of incorporation
- Initially registered office address and the first board of directors
Articles of incorporation are the constitution of the corporation. Any change to articles needs a subsequent filing of articles of amendment. You should carefully draft your articles of incorporation, have it reviewed by a lawyer or a Chartered Accountant before filing. Amending the articles need a govt fee. Some of the key questions to
While preparing articles, you should pay attention to:
- Size of the board of directors: This fixed a minimum and maximum of number of directors for a corporation.
- Classes and a maximum number of shares: You can have multiple classes of shares. Discuss with your corporate tax accountant since this can have an implication for capital contributions, dividend distribution, voting rights of shareholders or distribution of remaining assets at wind up.
- Restrictions on share transfers: This is another important article especially if you have multiple classes of shares or multiple shareholders.
- Restrictions on business: This is important if you want to restrict the business activity of a corporation. Its usually required for many professional corporations.
Along with articles of incorporation, an initial notice of the registered address and the first board of directors is also filed. Sometimes small business owners confuse themselves between directors and shareholders. A shareholder can be a director but a director does not need to be a shareholder. There is generally a requirement of a resident Canadian director. This requirement varies among different jurisdictions, some of them even do not require this at all. For example, for a federal corporation, 25% of directors (minimum 1 if less than 4) must be Resident Canadian.
5. Complete Extra-Provincial Registrations
If you plan to have a presence in multiple provinces and territories, complete extra-provincial registrations. If you are simply supplying goods and services to other provinces, you do not need to do extra-provincial registration. However, if you have an office in another province, you need to.
6. Register for Canada Revenue Agency Business Number and Accounts
A corporation is a separate legal entity and has its own income tax return. A business number is issued whenever a corporation is registered in Canada. Generally, the corporate registry forwards the application to the Canada Revenue Agency to issue a business number and income tax account.
In addition to the income tax account of the corporation, other program accounts are also needed, such as GST/HST account, payroll account, import/export account, information returns account or non-resident accounts.
If you are making taxable supplies in non-participating provinces, you might be required to register for sales tax with that province as well.
7. Register Operating Names
Many cases, a corporation runs multiple lines of businesses and its not practical to use the same corporate name for all of them. Or you have chosen a numbered corporation instead of named one. In such cases, you can register a business name with the province and use that as an operating name. This is similar to the concept of “doing business as” (DBA) in United States. A corporation can have an “n” number of business names registered. Business names are governed by provincial laws. A name registered in one province can be used in another province only after registering there.
You should also update your operating names with the Canada Revenue Agency.
If you are planning to use multiple operating names consider registering trademarks.
8. Prepare Corporate Minutes
Prepare corporate minutes for your corporation! Many small businesses end the process as soon as they get a certificate of incorporation and CRA business accounts. Corporate minutes are a legal requirement and must be prepared. You can prepare your own corporate minutes and keep on updating it yourself, get it done from a paralegal or a lawyer, or let your professional accountant prepare the same for you. Corporate minutes must be kept at the registered office at all times.
9. Other licenses and compliance
Depending on your business circumstances and the nature of the business, you need to comply with other applicable licensing requirements and laws. Some of these are WSIB, provincial and city licenses and permits. It’s important to consult professional service providers who can update you on license and permits requirements.
Business incorporation is one of key steps in starting a new business in Canada. We provide a comprehensive business startup Consultancy in Canada including business planning and tax planning.
Maroof HS CPA Professional Corporation provides a one-stop solution for business corporations. Whether you are looking for business incorporation services, corporate income tax services; tax preparation and tax planning, or comprehensive business plan, get in touch with us.