How to Incorporate in Ontario; How to
Federally Incorporate
PLEASE NOTE: The following is not meant as specific legal advice
but rather general information. This article considers businesses that sell
goods or services in Canada only.
5 Basic Steps
Ø
Step 1 – INTRO:
Consider general incorporation issues
Ø
Step 2 –
NAME & NUANS SEARCH: Establish that the desired name is permitted
Ø
Step 3 – PREPARE
& FILE Corporate documents and the Articles of Incorporation
Ø
Step 4 –
ORGANIZATION: Corporate organization (By-Laws, etc.)
Congratulations! You’ve decided
to start a for-profit business. Are you going to incorporate your business? When you incorporate your business, it’s
considered to be a legal entity that’s separate from the owners (and
shareholders). As an owner of a corporation, you will not be personally liable
for its acts, debts, or obligations. Incorporation
is not necessary for every business or company. Alternative corporate vehicles
such as a sole proprietorship or partnership may be appropriate, given the
circumstances.
Accordingly, your first step is
to actually think about the best
vehicle for your business. Next, you need to name your business. You will then
have to prepare the relevant applications and other required forms and
documents. Lastly, you will need to prepare your company’s by-laws and other
corporate documents.
The first table below lists some of the main advantages and
disadvantages of incorporation, both pro and con. The table that follows
compares federal vs. provincial incorporation.
STEP 1 – WHY INCORPORATE?
INCORPORATION
|
ADVANTAGES
|
DISADVANTAGES
|
- Limited
liability;
- Transferable
ownership;
- Continuous
existence;
- Separate
legal entity;
- Easier
to raise capital;
- Possibly lower taxes for incorporated businesses, which could translate to tax
advantages.
|
-
Corporations are closely regulated;
-
Costlier than a partnership or sole
proprietorship;
-
Extensive corporate records required (e.g.
shareholder and director meetings, annual government filings, etc.);
- Risk of conflict between shareholders & directors;
-
*Residency requirements for directors (25% of
directors must be Canadian residents).
|
FEDERAL OR PROVINCIAL
INCORPORATION?
|
FEDERAL
|
PROVINCIAL
|
ADVANTAGES
|
-
The corporation may carry on business in all
provinces & territories (requires additional provincial registration)
-
Able to use the same corporate name in each
province or territory, even if another company is already doing business
under a similar name.
-
Enhanced corporate name protection, second
only to trademark protection. The corporate name is generally reserved for
use anywhere in Canada (excepting Quebec).
-
Can operate cross-country as of right, subject
to provincial extra-provincial filing requirements.
|
-
Incorporator's responsibility to ensure that
proposed corporate name is available for use.
-
Names not usually rejected, unless they
conflict with another confusingly similar name already in use.
|
DISADVANTAGES
|
-
Higher initial set-up costs (federal
incorporation costs and extra-provincial registration fee(s)). Federal
corporations in Ontario & Prince Edward Island may register for free;
-
Much more annual paperwork: filings
required by Federal Director, plus all provincially
required filings.
-
Federal Name Granting Guidelines are very
strict and many proposed names are rejected.
-
Incorporation Fee: $200.00
|
- Corporate name only protected in province or territory of incorporation
-
Can only operate within the province of incorporation
as of right.
-
Must register extra-provincially if operating
in other provinces.
-
Incorporation Fee (varies; ON $300.00)
|
STEP 2 – SELECT
YOUR CORPORATE OR BUSINESS NAME (and NUANS Report)
Choosing a corporate or business name is more difficult than
choosing a name for a sole proprietorship or partnership because incorporation
calls for stricter name requirements. A corporate or
business name must identify the corporation and its activities, and include a
title such as “Ltd.”, “Inc.”, or “Corp.”
In Canada, corporate names can be in English, French or
both. You may also use a separate, equivalent English and French name. For
example, "Target Market Inc." (English form)/"Marché Cible
Inc." (French form). Before it grants approval, the Provincial Registrar
(or federal Corporations Directorate) must decide whether your proposed
corporate name is not identical or similar to any other existing company names.
NAME RESTRICTIONS
When choosing a corporate name you cannot use words or
phrases that are vulgar, obscene or objectionable (in any language). Also
prohibited are words with restricted use under federal or provincial laws
(think copyright or trademark). You can’t use a person’s name unless that
person has or had a material interest in the business and has given written
permission. If the person is not living and the name is used within 30 years of
the date of death, written consent of the estate is required.
You cannot use words that imply your business is associated
with the Crown or government – federal, provincial, or municipal – without its
written consent. Likewise, a private
post-secondary institution cannot use the words "college,"
"institute" or "university" without the written consent of
the Ministry of Education.
Business names must be registered in the Roman alphabet (e.g.
English, French, Spanish, Italian, Latin, etc.) but may contain numerals. Other
alphabets must be translated and registered in a language using the Roman
alphabet. If you wish to market or advertise in a foreign language or alphabet,
you may do so as long as you display your business name in a Roman alphabet
(i.e., English or French). Interestingly
enough, the following marks may be used in the name, but not as the first
character:
! " # $ % & ' ( ) * + ,
- . / : ; > = < ? [ ] \ ^ ` .
As a final note, if the corporation intends to carry on
business using a name other than its actual corporate name, the business name
must be registered under the Business Names Act.
PERFORM RELEVANT SEARCHES
No matter where in Canada you incorporate, a name search needs
to be done. A name search is a report required by the federal and most
provincial/territorial governments when granting new corporate names for use.
The report lists similar and existing corporate names, trademarks, and the
availability of the proposed name.
This search is known as a
NUANS (Newly
Updated Automated Name Search) report.
It
is a computer-printed search report that shows existing corporate names,
business names, and trademarks that are similar to your proposed corporate
name. The NUANS report is valid for 90 days from the date it was obtained.
This
is a link to a list of vendors that provide NUANS searches in Ontario.
The NUANS report is
not necessary if you are incorporating a numbered company. Note that the
number is automatically selected by the government. The incorporation process
for a numbered company is quicker than that for a named one; it’s also possible
to first incorporate a numbered company quickly, and then later apply for a
NUANS report and change the status of the company from a numbered to a named
corporation.
In some provinces, such as British Columbia and Nova Scotia,
a name search is performed after you’ve submitted a Name Approval Request or
Name Reservation Request Form. If the results of the search are acceptable and
your name is approved, it is then reserved for a set number of days during
which you must complete the incorporation process or restart the procedure all
over again.
STEP 3 – PREPARE
AND FILE YOUR CORPORATE DOCUMENTS (i.e., Articles of Incorporation)
Be careful when completing
this step! Preparing your corporate documents requires a little attention to
detail, as a corporation’s ability to exercise power and carry on business is
limited by it articles of incorporation. Your documents should address the
following:
- *The
minimum and maximum number of directors;
- The
nature of the corporation's business;
- The issuance
of shares, including any attached rights, privileges, conditions and
restrictions;
- Shareholder
rights, including voting rights;
- Borrowing
and mortgaging powers.
Most people usually find this step to be confusing and
complicated. Generally, to incorporate your business in Ontario, you’ll need to
prepare the following documents:
·
The Memorandum (sets out the Company’s rules of
conduct);
·
The Articles of Incorporation (sets out the
rules and regulations that will govern the conduct of the
company’s members and
directors);
·
The Notice of Directors (states required
information on directors. You must also submit a federally-
based NUANS report) (federal
incorporation only).
You may be able to find sample
templates of these documents online, or visit the business section of your
local library.
FILE YOUR DOCUMENTS AND APPLY FOR INCORPORATION
You can now incorporate your business on the websites of the
Federal Corporations Directorate and most provincial registries. You may also
submit your application (forms and fees) for incorporation by snail-mail to the
Registrar. You’ll receive a Certificate of Incorporation after you’ve successfully
registered your new corporation. There are many obvious advantages to filing
online, such as convenience and speed. You will receive an immediate acknowledgement when you
file online – it’s also $50 cheaper.
If the corporation will have a
word name rather than a number name, a NUANS name search report must be
submitted with the articles of incorporation. The NUANS name search report is a
seven-page, computer-printed search report consisting of existing corporate
names, business names and trademarks that are similar to the proposed corporate
name. The NUANS name search is valid for 90 days from the date on which it was
obtained. The NUANS name search report is not necessary if incorporating a
corporation with a number name.
Federal incorporation online
To federally incorporate online, file the following
documents in the prescribed form with Corporations Canada using its Online
Filing Centre:
·
Form 1, Articles of Incorporation (Original
signatures of the incorporator(s) are not required. However, retain signed
copies of the original documents in the corporate records).
·
*Form 2, Initial Registered Office Address
and First Board of Directors (Original signatures of the incorporator(s)
are not required. However, retain signed copies of the original documents in
the corporate records).
STEP 4 – PROCEED
WITH BALANCE OF CORPORATE ORGANIZATION
In this step, you’ll take care of a number of corporate
house-keeping matters. You will prepare “By-Law No. 1”, which deals with
general operating matters (e.g. meetings, notice, quorum, officers, proxies,
execution of documents, etc.). You will also need to prepare any other required
by-law, such as by-law No. 2 (addresses the borrowing and pledging of a
corporation’s assets as security).
You may also need to draft the initial written resolutions
of the directors (or minutes for any meeting held), which addresses how to pass
by-laws, allot and issue shares, appoint officers, approve a sample share
certificate, approve the corporate seal (if any), determine the fiscal year end,
and pass any other necessary or appropriate resolutions. Also, you may have to
draft the initial written resolutions of the shareholders (or prepare minutes
if a meeting is held) to ratify by-laws, elect permanent directors, appoint
auditors or accountants (as the case may be) and pass any other shareholder's
resolutions that may be necessary or appropriate.
If you incorporate in Ontario, you must file a Form 1
(Initial Return) with the Ministry of Government Services. If a federal
corporation is formed, you must register in any province where the corporation will
carry on business.
I hope this helps you get started! As always, feel free to
post any comments or questions.
*A Note on Directors
and Officers
There are a few important requirements to mention. Firstly,
there must be at least 1 director (over the age of 18). You can choose a set
number or range for the number of Directors, who can only be individuals. You
must provide the details of each Director's residential address and their
Canadian residency status (25% of directors must be Canadian, or if less than 4
directors, at least one must be a Canadian resident). Directors can also be
shareholders and officers of the same company. The Officers consist of a
company's senior management (e.g. President, Secretary and Treasurer). Each
company must appoint a President and a Secretary. You must provide the date on
which the officer or officers were elected and appointed. One person can be
President/Secretary/shareholder/Director of the company. Officers need not be
Canadian residents.
