The Step-by-Step Guide to Forming an Ontario and Canadian Corporation

Canadian and Ontario incorporation.
Exhaustive Coverage of Essential Information

It can be challenging to learn the ins and outs of incorporation and figure out how to do it.

In an effort to address all of the major concerns in a single location, we've compiled them here.

Please don't hesitate to get in touch with us at any time if you have further questions that aren't addressed on this page

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Before launching a business, ask yourself this:

For my company, what kind of legal framework would be most beneficial?

When deciding how to launch your company, you have a few primary choices.

The two primary advantages of incorporation are:

Because it is treated as a legal entity in its own right, a corporation has the same rights and responsibilities as any other person. If your corporation is a party to a contract, only the corporation itself should be responsible for any damages that result from the breach, according to the theory of limited liability. Alternatively, if your company takes out a loan, it should be the company's responsibility to repay it. Therefore, under the doctrine of limited liability, you are not personally liable for the debts, obligations, or liabilities of your business.

Remember that limited liability is just a rule; in practice, there are bound to be exceptions. When a business borrows money from a financial institution, for instance, you will often be asked to personally guarantee the loan. Or, if you're looking to lease commercial space for your business, the landlord may require a personal guarantee of rent payments. Know that the limited liability protection of a corporation is not ironclad and that there are ways to reduce the amount of personal guarantees required. In addition, company directors may be held personally liable for their actions in some situations. In particular, as a director, you may be held personally liable for any taxes or employee deductions that your company owes to the government.

These are just two of the many benefits we discuss in our blog post "Top Ten Reasons to Incorporate in Ontario," which also includes:

  • Eternal existence
  • Benefits of Fundraising
  • Simplified inclusion of multiple proprietors
  • Property Transfer Tax Breaks
  • Reducing Future Costs Associated with a Period of Change

Check out this article for more information on debt and equity financing options for businesses.

You should weigh the costs and benefits of incorporating now versus waiting.

There is a one-time fee associated with establishing your business and incorporating it. Other annual compliance obligations include filing a corporate tax return.

It's possible to delay incorporation until a later date if your income isn't yet high enough to warrant the expense. However, once your business is established and profitable, you may want to consider switching to a corporation rather than operating as a sole proprietorship or partnership. This change may require additional costs beyond the initial costs of forming a corporation. Possible asset transfers and liability takeovers Your accountant's advice and a lawyer's help will be necessary for this sort of reorganization. If you incorporate while your business is still in its early stages, you can potentially save money on transitional costs.

It may be preferable to incorporate now rather than wait, even if you won't be able to reap all of the tax benefits for a while. Limited liability protection kicks in immediately.

When it comes to managing, regulating, and overseeing corporations in Canada, there are two tiers of government to consider. Corporations Canada is the federal government agency in charge of incorporations, while all Canadian provinces and territories offer their own incorporation services. The Ontario Business Registry is the official government agency responsible for incorporating companies in the province of Ontario. There are two tiers of government, both of which perform the same function and offer essentially the same service.

Nonetheless, there are a few key distinctions to keep in mind:

In some fields, professionals are allowed to incorporate as a separate legal entity. Among the regulated professions are law, accounting, medicine, dentistry, and several others. Articles of incorporation for professional corporations typically include limitations on the types of business that can be conducted by the company. Further, in most cases, only people who are themselves professionals can become shareholders in a professional corporation.

Note that forming a corporation does not protect professionals from legal responsibility to their clients or patients. They do so to take advantage of the reduced corporate income tax rates on operational profits afforded by the small business deduction.

To obtain a certificate of authorization to practice their profession in Ontario through their professional corporation, professionals must prepare and file the application materials with their respective College or other governing body. A complete application will typically include the following: an application form, a copy of the certificate of incorporation, and a declaration signed by a company director. application fee paid to the College or other governing body, and a corporate profile report obtained from the Ministry of Government and Consumer Services (both optional). These costs can average $400, and they are typically non-refundable except in rare cases.

Our blog also includes a comprehensive guide to incorporation for Ontario professionals.

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When dealing with Ontario companies, the entire procedure takes no more than two to three hours. This is due to the fact that filing articles of incorporation is routine. The procedure takes a little longer for federal corporations. The application has to be reviewed by an examiner who checks it and the results of the NUANS name search to make sure there are no duplicate names in use. If there are no objections to the name you've chosen, a federal incorporation can be finalized in a day or two.

There are typically three components of a company's name:

The example below illustrates this breakdown:

A business or trade name registration grants you the legal right to conduct business in the province in which you filed your application, but it does not provide you with any legal protection for the name. On the other hand, a trademark can help you prevent others from using your name in a similar context.

Articles of incorporation must be drafted and filed in order to establish a corporation in Ontario, Canada, or any other Canadian province. You can restrict the types of business that can be conducted, the types of shares that can be issued, and the circumstances under which shareholders can sell their shares in the certificate of incorporation and the articles of incorporation that accompany it. Consequently, it is crucial that your articles of incorporation be properly prepared for the success of your business.

The articles of incorporation will detail the company's name, registered office address, number of directors (fixed or range), business restriction (if any), share classes and their rights, privileges, restrictions, and conditions, restrictions on transfer of shares, and other provisions (if any).

Find out more about the components of an Articles of Incorporation by reading our latest blog post!

The residency requirement for directors of Ontario corporations has been removed as of July 5, 2021, per Bill 213 of the Ontario legislature. Because of this amendment, non-Canadians who wish to incorporate in Ontario no longer have to find a resident Canadian to sit on the board or incorporate in another jurisdiction if they wish to do so.

A director must be a Canadian resident in order for a federally chartered company to form. Where there are fewer than four directors on the board, at least one must be a Canadian resident to meet the minimum 25% requirement. ”

If there is only one director on the board, that director must be a Canadian citizen or permanent resident. If there are two directors, at least one must be a Canadian citizen or permanent resident. To us, a "resident Canadian" is someone who is either a citizen or permanent resident of Canada and who maintains a primary residence there. If you do not meet this requirement, you can still incorporate a company in Ontario or at the federal level by recruiting a Canadian resident (such as a close friend or relative) to serve alongside you on the board of directors. If they agree to serve, you may need to get them directors insurance or offer them indemnity (i.e., pay them back if they make a mistake). e if they incur liability as a result of their actions as a director but it was not their fault, they will be indemnified against any resulting costs, expenses, or losses

This is a frequent line of inquiry. Basically,

A company's shares are its individual units of ownership. If there is only one shareholder, then that person owns all of the company. Each shareholder in a corporation who owns 100 shares is a 50% owner of that corporation, and so on.

The two primary categories of stocks are:

Articles of incorporation typically require a list of authorized share classes.

It's possible to have a number of different types of stock, such as Common, Special, and Preferred. There are two main schools of thought on the subject of how many classes you should allow in your articles.

For future use in income splitting (if applicable) and tax reorganizations, some attorneys and accountants prefer to create a wide variety of share classes. Some attorneys and accountants prefer to simply include the bare minimum and leave it to future amendments to the articles to add additional provisions, such as the creation of different classes of shares. All that's left is a matter of personal preference.

Keep in mind that in a corporation with only one class of shares, all rights, such as voting at meetings, receiving dividends, and inheriting the remaining assets upon dissolution, are vested in those shares.

If you hire Ordower Law to incorporate your business, we can talk about the different types of shares that make sense for your company.

Check out this article if you want to learn more about creating share classes.

A shareholders' agreement, or "shareholders' agreement," is a contract between the owners of a company that sets forth the rights and responsibilities of the owners in various circumstances pertaining to the ownership and operation of the company.

Shareholder agreements typically address the following topics: board and shareholder decision making; funding obligations; sale events (such as death, disability, insolvency, default, and others); restrictions on the transfer of shares; rights of first refusal; divorce provisions (such as a shotgun clause); and the definition and assignment of roles and responsibilities. Among these are the restraints on competition, the need to protect sensitive information, and other similar measures.

To learn more about Shareholders' Agreements, read our latest blog post.

You may want to read "Anatomy of a shareholders' agreement" for a more in-depth discussion of the provisions typically included in such contracts.

It could be assumed that accounting is a simple, black-and-white field. Surely, numbers are just numbers, right? Hold up a minute For any given company, there are both optimal and suboptimal accounting professionals.

Depending on the size and complexity of your business, you may or may not require the services of a full-time bookkeeper. However, you will almost certainly want to have a professional accountant handle your annual T2 corporate tax return and, if applicable, your HST return. Being able to rely on a reliable accountant is crucial.

The Quick and the Dumb - Is the emphasis on small businesses Can you verify their credentials by asking if they hold a CPA or CA designation? Can we trust them Do they offer specific suggestions for reducing your tax burden? Also, just the basics Do they make themselves readily available when you require their services? Do you know them on a personal level? Are we a good match? Do they assist you in establishing and keeping track of your monetary objectives? Would they back you up during an audit with the CRA? Do their rates stack up to those of other accountants? Can you tailor their services to your specific requirements, or do they have a generic offering?

Instances of the past If you want to hear from some of their customers, you can...

We have an extensive network of reputable accounting experts and would be happy to put you in touch with them. Contact us if you'd like us to set up a no-cost, no-obligation meeting with a few accountants so you can get a better grasp of the whole thing.

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