There are numerous reasons why incorporating your business may make sense in your particular circumstances. Some of the most common reasons include the following:
- limited liability
- perpetual existence
- greater ability to raise capital
- increased credibility
- tax planning opportunities
A Federal corporation is incorporated pursuant to the Canada Business Corporations Act (“CBCA”). Subject to extra-provincial or extra-territorial registration requirements, a Federal corporation has an automatic right to carry on business anywhere in Canada under its registered corporate name. The name of a Federal corporation is also, generally, automatically protected across Canada (except in the Province of Quebec) at the time of incorporation.
A Provincial corporation is incorporated pursuant to the applicable provincial corporate legislation. For example, in Manitoba, a corporation would be incorporated under The Corporations Act (Manitoba). By default, a Provincial corporation only has the right to carry on its business within the Province in which it is incorporated.
If a Provincial corporation intends to carry on business in a Province or Territory other than in which it was initially incorporated, it must complete an extra-provincial or extra-territorial registration in the applicable Province or Territory.
TIP: The definition of “carrying on business” is different from jurisdiction to jurisdiction. It is important to consult a lawyer in the applicable jurisdiction. In some jurisdictions, simply having a director living in the applicable Province or Territory may be sufficient for a corporation to be deemed to be “carrying on business” in that Province or Territory.
A “business name” or “trade name” refers to a name that will be used for a particular business. A business name can be registered by a single person operating as a sole proprietorship, or by one or more persons operating as a partnership, or by a corporation. Most importantly, business name registration does not create a separate legal entity and you cannot use legal element in a business name (i.e. “Limited”, “Ltd.”, etc.).
A corporation is a separate legal entity – i.e. it is separate from its owner(s) or shareholder(s). The owner(s) or shareholder(s) of a corporation enjoy “limited liability” and are not directly responsible for the debts or obligations of the corporation except in certain circumstances.
If you register a business name, you will be required to renew the registration every 3 years but, generally, there are no other annual maintenance costs. If you incorporate a corporation, the name does not have to be renewed (as it will be the name of the corporation) and will exist as long as the corporation exists, but there are annual costs to maintain a corporation.
If you maintain all legal records yourself, the only costs incurred will be the filing fee charged by the applicable corporate registry for filing the Annual Return of Information, which is a form sent annually by the corporate registry. It is very IMPORTANT to ensure that the Annual Return of Information is completed and filed each year, because your corporation can be automatically dissolved if you fail to file it for 2 years.
If you have a lawyer’s office maintain all legal records, the average costs are $250-$300 (plus applicable filing fees and taxes).
NOTE: the average lawyer’s fees noted above are an average for dealing with maintenance of annual records only and the preparation of additional required corporate documents (e.g. resolutions for dividends or resolutions to approve contracts) would generally be charged as separate fees.
TIP: We recommend that you have a lawyer’s office maintain your corporate minute book and annual records. Although it may not be a very difficult task, we have seen it too often where a client simply fails to maintain the records annually and has to play ‘catch up’ later, which often will cost more than the client would have incurred in having the lawyer maintain the records on ongoing basis.
Generally, the name of a corporation must end with “Incorporated”, “Inc.”, “Limited”, “Ltd.”, “Corporation”, or “Corp.”. Prior to proceeding with incorporation, the name must be searched and reserved for use. The applicable corporate registry will not approve the name if it is likely to mislead the public or if it too closely resembles the name of another corporation already formed in the same jurisdiction. The applicable corporate registry will also have additional restrictions on use of certain words in the name of a corporations (e.g. police, province, etc.).
The applicable corporate registry will charge per each search, so choosing a unique name will help your chances of having the name approved.
TIP: Search Google for the name you would want to search and reserve to see if there is already another corporation or entity with the same or similar name.
Similarly to a corporate name, the applicable registry will not approve a business name if it is likely to mislead the public or if it too closely resembles the name of another business in the same jurisdiction. The applicable registry will also have additional restrictions on use of certain words in the name (e.g. police, province, etc.).
The applicable registry will charge per each search, so choosing a unique name will help your chances of having the name approved.
TIP: Search Google for the name you would want to search and reserve to see if there is already another business with the same or similar name.
No, but it is highly recommended. Although it will initially cost more to set-up a corporation through a lawyer, it will likely save you costs long-term. A lawyer can recommend a specific share structure and set-up of shareholders based on your circumstances. We have seen it too often where a client incorporates a corporation without lawyer’s involvement and only short time later needs to make changes which cost nearly the same or more than the lawyer would have charged for the whole incorporation process at the outset.
A Unanimous Shareholders Agreement (“USA”) is an agreement among all of the shareholders of a corporation which puts restrictions on the powers of the directors of the corporation to manage or supervise the management of the business and affairs of the corporation. Essentially, the USA relieves the directors of the corporation of certain power or responsibilities.
Generally, the USA will include provisions dealing with all or some of the following:
- placing restrictions on the issuance or transfer of shares
- specifying the types of decisions that will require approval of shareholders
- insurance requirements for key shareholder(s)
- right of first refusal if one of the shareholder wants to sell to an outside party
- buy-out provisions between or among the shareholders (often referred to as shotgun provisions)
- buy-out on death of a shareholder
- mechanism with dealing with a shareholder’s interest upon disability
- mechanism with dealing with a shareholder’s interest upon bankruptcy
- restrictions and rights of minority shareholder(s) if the majority shareholder(s) want to sell to an outside party
The above is only a summary of provisions which are often included in a USA and the USA may include many other provisions based on particular circumstances.
Although there is time and cost involved in negotiating and preparing a USA, the time and costs involved in resolving a dispute at a later date (when shareholders are no longer getting along) will be exponentially higher.
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