Deciding to incorporate is a significant step for any entrepreneur, and the abundance of advice available can sometimes make the process seem more complicated than necessary. However, fear not – this article aims to provide you with a comprehensive guide on how to incorporate a business in Canada. Let’s delve into the key aspects.
Determining When to Incorporate: The decision to incorporate is often driven by two primary factors – limited liability and tax considerations.
Limited Liability: Incorporation offers the invaluable benefit of separating personal and business obligations. Studies show that only half of small businesses survive beyond their first five years, making limited liability crucial. If your business faces challenges and is incorporated, your personal assets remain protected. Without incorporation, operating as a sole proprietorship or partnership exposes personal assets, such as your home and car, to business debts.
Tax Advantages: Corporations enjoy distinct tax treatment compared to individuals in Canada. With lower tax rates for corporations, you have the opportunity to reduce taxes by leaving funds within the company rather than transferring them to your personal account. This flexibility extends to choosing how you receive payments – through salary, dividends, or a combination, depending on minimizing the tax burden.
Benefits of Incorporation: Beyond limited liability and tax advantages, incorporating your business provides additional benefits:
- Raising Capital: Incorporation is essential if you seek investments, as it allows you to issue shares to potential investors.
- Professional Image: An incorporated business exudes professionalism when interacting with clients, presenting invoices under an incorporated business name (Inc., Ltd., or Corp.).
- Transferability: Corporations facilitate easy transfer among individuals through the sale or transfer of shares, simplifying long-term succession planning.
- Continuous Lifespan: Unlike individual ownership, corporations can exist indefinitely, providing stability.
Steps to Incorporate Your Business in Canada:
- Choosing a Business Name:
- Select a formal legal name, distinct and descriptive.
- Ensure it includes a legal ending (e.g., Inc.).
- Conduct a trademark search to avoid conflicts.
- Filing Articles of Incorporation:
- Decide on share class structure and initial directors.
- Ownr can automate the filing process, collecting necessary information during onboarding.
- Company Formation Documents:
- Create and sign essential documents like Corporate Bylaws, Shareholder and Director Resolutions, and others.
- Ownr automates the preparation of these documents based on your business information.
- Cost of Incorporation:
- Ownr offers a comprehensive package between $499 and $699, covering government fees, name search, and 12 months on the Ownr platform.
- Federal vs. Provincial Incorporation:
- Choose between federal and provincial incorporation based on your business needs.
- Federal incorporation provides increased name protection but may involve additional paperwork.
- Roles in a Corporation:
- Shareholders own shares, directors oversee activities, and officers actively manage the business.
- Small businesses often have one person fulfilling all roles.
- Structuring Your Corporation:
- Create multiple share classes for different rights and privileges.
- Voting and non-voting shares, common shares, and preferred shares offer flexibility.
- Post-Incorporation Obligations:
- Maintain organized documents, including a minute book and share records.
- Regularly update company details and file necessary forms with the government.
- Prepare annual returns and resolutions to stay compliant.
In conclusion, incorporating your business in Canada involves thoughtful consideration of legal, financial, and operational aspects. This guide aims to simplify the process and equip you with the essential information needed to make informed decisions.
