Canada Corporate Filings

Corporate Registry Solutions Inc

Canada Incorporation Frequently Asked Questions

Frequently Asked Questions about Incorporating a New Business in Canada

What is a Corporation?

A Corporation chartered by the province or territory in which it is headquartered is considered by law to be a unique entity, separate and apart from those who own it. A Corporation can be taxed, it can be sued, and it can enter into contractual agreements.

A Corporation is comprised of three groups of people: shareholders, directors and officers. The owners of a Corporation are its shareholders. The shareholders elect a board of directors that has responsibility for management and control of the Corporation and to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Tax Considerations for corporations

Since a corporation has a separate legal existence, it has to pay tax on its income, and therefore must file its own income tax return. It must also register for the GST/HST if its taxable worldwide annual revenues are more than $ 30.000.

The Corporation pay taxes on corporate earnings after the business deductions are made. Money taken out of the company in the form of share dividends or wages by the shareholders is claimed on their personal tax returns. Tax advantages include the small business rate on the first $ 200.000 of income for qualifying companies.

A corporation must file a corporation income tax return (T2) within 6 months of the end of every taxation year, even if it doesn’t owe taxes. It also has to attach complete financial statements and the necessary schedules to the T2 return. A corporation pays its taxes in monthly installments.

Liability

Liability is limited to the assets of the corporation and the shareholders are not personally liable for the debts of the company unless allowed by law. The directors of a corporation may be held personally liable under certain circumstances, such as unpaid contributions under the Income Tax Act. Most banks and other large creditors will require the owner of a small corporation to provide a personal guarantee to secure a loan. These factors reduce the effectiveness of limited liability for small business owners.

Am I personally liable for the debts of the company?

Normally, shareholders are not liable, unless they have personally guaranteed a debt of the company. Directors and officers may become personally liable for actions or debts on behalf of the company in a number of cases, including:

Each director or officer may be liable for up to two months' wages for certain employees, under the Employment Standards Act.

Many statutes, including the Criminal Code, provide that if the company has committed an offence, every director or officer who authorized, directed, condoned or participated in that offence, may be personally liable.

Duration

A corporation is its own legal person therefore the company survives the death, incapacity or withdrawal of any shareholder or director. Its survival depends on the filling of annual returns and fulfillment of the requirements of the corporations act.

Advantages

• Ease of transferring ownership. Ownership (represented by shares of stock) can be readily transferred;
• No shareholder, officer or director may be held liable for debts of the Corporation unless corporate law was breached;
• Limited Liability - shareholders are not held accountable for corporation’s debt, obligations, or acts of the company over and above the amount paid or owed for the purchase of shares.
• Unlimited life - the corporation does not cease to exist, unlike sole proprietorships or partnership, with the death of shareholders because it is a separate legal entity.
• Access to capital- corporations can raise capital by issuing and selling new shares in the company or by issuing debt.
• The corporate structure provides for a great deal of flexibility with respect to ax planning;
• Tax advantages- lower tax rates

Disadvantages

• Cost of organization, legal fees, and provincial filing fees can be expensive depending on the complexity and size of the business;
• Control is vested in a board of directors, elected by shareholders rather than the individual owners
• The possibility of double taxation exists. Income from the business is taxed at the corporate level and again when the individual shareholders receive profits in the form of dividends;
• The Corporation must qualify in each province or territory in which it chooses to do business; and Unlike Sole Proprietorships and Partnerships, individual shareholders may not deduct Corporation losses
  

Should I incorporate?

"I am starting a new business. Should I incorporate?" This is one of the most frequently asked questions by entrepreneurs. The answer usually is "It depends." Factors to consider are the benefits of incorporating (rather than operating your business as a sole proprietorship or partnership) and the implications that incorporating may have on your business.

What kind of businesses can incorporate under federal and provincial Business Corporations Act?

Almost any type of business may incorporate under federal and provincial Business Corporations Act. However, railway, steamship, air transport, canal, telegraph, telephone, irrigation, mortgage, banking, insurance, loan and trust companies, and other financial institutions, cooperative, Chambers of Commerce as well as not-for-profit corporations are incorporated under different statutes.

There are no restrictions, such as minimum company size, on the businesses that may incorporate under federal and provincial Business Corporations Act.

Who can form a corporation?

One or more individuals may form a corporation under federal or provincial Business Corporations Act. Similarly, one or more companies or "bodies corporate" may incorporate a company.

How to Set Up

You set up a corporation by filling out an article of incorporation, and filing it with the appropriate provincial, territorial, or federal authorities.

Individuals or groups wishing to operate as corporations in Canada, are required under the Provincial Business Corporations Act, to file the appropriate forms with the Corporate Registry of their jurisdictions..

What are the steps to incorporate my business?

The process of Canada business incorporation has three main elements:

First is the Name Search and approval. This search is used to confirm that no one else has a business or registered trademark with a name as, or similar to, the one you have chosen. The name of an incorporated company must end with one of the following designations:

• Limited or Limitee;
• Incorporated or Incorporee or
• Corporation

The following abbreviations of the above are also acceptable:

• Ltd. Or Ltee.
• Inc.
• Corp.

If the name of the company is to be its incorporation number, for example 123456 A.B. Ltd; a name approval is not required and the number will be assigned at the time of incorporation.

Second. Articles of Incorporation are completed. Articles of incorporation are legal documents that establish your business, and must be approved by the government before you do business under that business name.

If your Articles of incorporation, meets the current legislated requirements, The Corporate Registry Office will process the request and issue you a certificate of incorporation as proof that the registration has occurred.

The third element is the fee to file your application for incorporation.

Is a lawyer needed to incorporate?

A lawyer is not necessary to incorporate, although they may provide valuable advice. If the incorporator is inexperienced, or the proposed structure is complicated, he/she may wish to consult with legal counsel or other professional advisors.

What documents do I need to incorporate?

In Canada, typically, most jurisdictions require the filing of articles of incorporation, accompanied by notice of directors, notice of registered address and and the statutory government incorporation fees.

What are the Government Fees to Incorporate?

The government fees will vary depending on the jurisdiction of your corporation.

Can a corporation act as a director on the Board of Directors?

No, directors must be individuals. Federal and provincial Business Corporations Act, disqualifies from being a director:

• anyone who is less than nineteen years of age;
• anyone of unsound mind;
• a person who is not an individual; and
• a person who has the status of bankrupt.

Can a corporation have only a P.O. Box (Postal Office Box) as the Registered Office address?

No, the registered office must include a street address as well as the postal address if different. The purpose of the Registered Office is to have a location for service of a notice or document required to be sent or served on a corporation. In addition, the records of the corporation are usually stored and located at that office. Where it is impossible for a corporation to have a street address (certain remote communities within the Territories do not have street addresses) then a detailed description of the Registered Office location is required. This may be a lot, block and plan or a house number.

What is a Named Corporation?

In Canada, you can create a company with a name, or create a numbered company. A “named corporation” is a corporation that uses a distinctive company name.

What is a Numbered Corporation?

In Canada, you can create a company with a name, or create a numbered company. If you want to create a numbered company, You can ask the companies office of your jurisdiction, to assign a number for your corporation (e.g. 1234567 Canada Ltd.) at the time your articles of incorporation are processed. Many SMEs and holding companies choose this option when a corporate name is not important, thus ensuring faster processing and saving the expense of ordering a NUANS® report, or provincial name search report.

How to select a Corporation's Name?

Every corporation needs a name. In order to protect the public and avoid confusion, this name must be distinct from the names of all other corporations. All Canadian jurisdictions regulate corporate names to ensure that the public is not misled by confusingly similar corporate names. The degree of scrutiny differs from one jurisdiction to another.

You need to choose a distinctive word name for the company you wish to incorporate. An intended name will not be registered if it is the same as a registered name appearing in the Registrar’s index of company’s names.

When choosing your company name, it is important to consider some legal elements in order to comply with federal and provincial Business Corporation Act.

A “named” name should consist of three parts of elements:

(1)The first part is usually the distinctive element
(2)The second part describes what the corporation does or is
(3)The third part is the legal element

E.X. ABC INCORPORATION SERVICES LTD

(1) (2) (3)

In this example

(1)The distinctive element is “ABC”
(2)The descriptive element is “Incorporation Services”
(3)The legal element is “Ltd”

here are other legal elements one of which must be in your corporation’s name. Accepted legal elements are:

Limited
Limitee
Ltee
Ltd
Corp
Corporation
Inc
Incorporated
Incorporee

Preparing a pre-incorporation agreement

A pre-incorporation agreement sets out the financial and organizational structure for a corporation being formed. Although not legally required, a pre-incorporation agreement can be a very useful aid to starting a new corporation. the process of drawing up an agreement allows you and other owners to focus on key business issues.

You may not need to create a pre-incorporation agreement if you fall into one of the following categories:

• You will be the sole owner of your corporation
• You are incorporating an existing business with your co-owners
• You've previously done business with those who will co-own your corporation, or
• The owners of your corporation will be family members

Preparing articles of incorporation?

Articles of Incorporation are legal documents that establish your business, and must be approved by the Government of Alberta before you do business under that business name.

Before completing Articles of Incorporation, incorporators will have to make basic decisions about their corporation as follow:

• Where will the registered office be located?
• How many and what classes of shares will the company be authorized to issue?
• Should there be restrictions on share transfers to ensure that the corporation remains “private?”
• How many directors will be appointed? Will there be a set number of directors or a minimum and maximum number?
• Should there be restrictions on the types of activities or type of business that the corporation may conduct?
• Are there any other restrictions or clauses that should be included in the articles?

Organizing your Corporation

The preparation of By-laws and organizational minutes and resolutions are a legal requirement in virtue of incorporation laws.

After the Corporation has been created, its structure must be organized. The organization of the corporation is documented in written form (Organizational Minutes) and maintained in the corporate minute book. The initial organization of the Corporation is achieved by a meeting of directors or shareholders of the corporation called organizational meeting, and by written resolutions signed by all directors or shareholders.

The orders of business of an organizational meeting are usually to appoint officers, issue shares, make by-laws, appoint auditor until the first meeting of shareholders and make banking arrangements. Included in this initial organization are the following:

• Election of Directors
• Appointment of corporate officers
• Issuance of shares
• Complete Organizational Minutes
• Complete and Approval corporate by-laws

What are the Bylaws of the Corporation?

The By-laws are an internal corporate document that lays down the basic rules for the internal functioning of the corporation. They are required by provincial law, and they must conform to the various provisions of provincial corporate legislation.

The by-laws typically cover such topics as the establishment and functioning of the board of directors, the officers and their duties, procedures for regular and special meetings of the stockholders and of the board of directors, establishment of the fiscal year, procedures for transfers of stock and other matters of basic governance.

The incorporator typically adopts the initial by-laws after consultation with the initial investor(s). The by-laws may be subsequently amended by the stockholders or, to the extent authorized by the board of directors.

What are the Minutes of the Corporation?

After a company has been incorporated in Canada federally or provincially, by law its structure must be organized and documented in written form and maintained in the corporate minute book.

This minute book memorialize all corporate formalities and help your corporation to effectively maintain their corporate records. A well-maintained corporate minute book should contain a copy of your articles of incorporation together with any and all amendments, By-laws together with any amendments and/or restatements, Incorporator minutes and consents, minutes of shareholder meetings, shareholder resolutions, minutes of directors’ meetings, resolution of directors, directors register, securities register, share transfer register, copy of any forms filed with the government, copy of any unanimous shareholder agreement.

Once the corporate minute book is ready, the corporation is fully organized and operational. However corporate formalities must be carried toward on a regular and ongoing basis to comply with applicable laws. These formalities are:

the preparation of certain documents relating to business decisions (including what is often called “annual minutes” and “corporate resolutions”

the filing of relevant government forms and reports in a timely fashion keeping the corporation's information up-to-date on the government registry.

What is a shareholder agreement?

A shareholder agreement is an agreement entered into by some, and usually all, of the shareholders of a corporation. The agreement must be in writing, and must be signed by the shareholders who are a party to it. While shareholder agreements are specific to each company and its shareholders, most of these documents deal with the same basic issues.

Shareholder agreements are voluntary. If you choose to have one, the shareholder agreement should reflect the particular needs of your company and its shareholders.

Maintaining your corporation

Corporate maintainence refers to the things you need to do – usually on an annual basis. Companies incorporated in Canada are required under provision of federal and provincial laws to keep the corporation's information up-to-date on the government registry by filing relevant government forms and reports in a timely fashion. To comply, corporations must file when required:

file an annual return/report on or before the last day of the month following the anniversary month of incorporation, except in the year of incorporation,

file a notice of directors within 15 days after any change is made among its directors.

file a notice of registered office within 15 days after any change is made in the address of its registered office.

file a notice of unanimous shareholder agreement within 15 days of the execution or termination of such agreement.

Do I have to get a corporate seal?

A corporation under the Business Corporations Act is not required to have a seal. If you wish to have a corporate seal for your corporation, you may purchase one from a legal stationery store or commercial supplier.

What is an Annual Return?

All corporations must file an annual return with the appropriate government department or agency The purpose of the Annual Return is to update your corporate records. The return covers such items as name of corporation, registered office address, corporation number, financial year end and a description of the main type of business. It also communicates any changes of your registered office or corporate directors, if applicable. The date of your last annual meeting and whether the corporation has ever distributed its securities to the public are also required.
The annual return must be filed within the prescribed dates and must be accompanied by the government filing fee. The dates and fees vary depending on the jurisdiction.

If a corporation fails to file an annual return within the prescribed delay, a penalty fee may be imposed. If a corporation repeatedly fails to file its annual returns (typically for 2 consecutive years), the government department or agency may remove the corporation from the government records. If a corporation has been struck from government records, the corporation may be affected in a variety of ways. To re-register the corporation must typically bring its annual filings up to date and pay a penalty fee.

What is the deadline for filing your Annual Return?

Annual returns for all corporations are due by the end of the month following the anniversary date of incorporation/amalgamation.

What is a Business Number?

The Business Number (BN) is a unique number assigned to a business by the Canada Revenue Agency (CRA). It allows businesses to access services with participating agencies using one number. To apply online for a business number, please continue here

How does a business obtain a Business Number (BN)?

Each sole proprietor, partnership, or corporation will get one BN. Sole proprietors will get one BN for all of their businesses (except any business that is registered under a partnership, trust, or corporation).

The business number (BN) is a federal numbering system that simplifies and streamlines the way businesses deal with the Canada Customs and Revenue agency (CCRA). To apply online for a business number, please continue here

Do I need to apply for a Provincial Sales Tax (PST) Account?

• Yes, if you engage in business activities such as selling or leasing taxable goods or services as:
• Regularly make taxable sales of goods: alcoholic beverages, automotive parts an supplies, building materials, cigarettes and other tobacco products, flowers, general merchandise such as cosmetics, appliances, souvenirs, clothing, art supplies, household or office furniture, motor vehicles, propane (not a complete list. Further information can be obtained from your local retail sales tax Branch).
• Leasing goods as a lessor
• Providing legal services
• Selling parking rights
• Provide taxable services. A taxable service is any service provided to install, assemble, dismantle, repair, adjust, restore, recondition, refinish, or maintain tangible personal property: i.e. automobile maintenance and repairs, furniture repairs, re-upholstery, and refinishing, installation and servicing of software, maintenance of business equipment, such as cash registers, photocopiers, and computers. Watch repair and maintenance. (not a complete list. Further information can be obtained from your local retail sales tax Branch).
• Providing telecommunications services
• Act as liquidator, receiver, receiver-manager or trustee and dispose of assets in the cause of your business.

To register for the PST , please continue here

Do I need to apply for a Hotel Room Tax (HRT) Account?

Yes, if you make sales of taxable accommodation in Canada.

Do I need to register with Workers' Compensation Board?

Virtually all employers in Canada are required to register with Workers' Compensation Board. as soon as they hire workers. Individuals who are not automatically covered by Work Safe (a partner in a business, a proprietor, or the spouse of a proprietor) can apply for optional coverage through Personal Optional Protection.

To register your business with WSIB, please continue here

Do I need to register for Goods and Services Tax / Harmonized Sales Tax (GST/HST) with the CRA?

Yes, if you sell or provide goods and services in Canada and your annual, world-wide GST/HST taxable sales, including those of any associates, are more than $30,000.00.

To register your business for the GST, please continue here

Do I need to register for Payroll Deductions with the CRA?

Yes, if you are an employer and pay salary, wages, bonuses, vacation pay or tips to your employees; or you provide a benefit, such as board and lodging, to your employees.

To open a payroll deductions account with the CCRA, please continue here

Do I need to register for an Import and/or Export account with the CRA?

Yes, if you are a commercial importer and/or exporter. To open a Import/Export account with the CCRA, please continue here

Do I need to register for Corporate Income Tax with the CRA?

Yes, if your business is federally or provincially incorporated, or you are a non-resident corporation operating in Canada. The CRA registers most Canadian corporations for corporate income tax and assigns a Business Number shortly after incorporation. Companies incorporating federally or in Manitoba, New Brunswick, or Nova Scotia are registered for corporate income tax with the CRA and receive a Business Number immediately upon incorporation. To open a Corporate Income tax account with the CCRA, please continue here

Do I need a Municipal Business Licence?

Most municipalities require the licensing of business premises.

Business licence applications are available from the municipal office. Fees and types of licences are determined by municipal bylaws, and vary from one municipality to another. At present, business licences are not required in non-municipal areas of the province.

You may also be required to obtain a non-resident business licence for municipalities in which you conduct business but do not maintain premises. If you are involved in direct sales or providing services to the end consumer, contact each municipality in which you are selling goods or services to determine whether or not a non-resident business licence is required.

In addition to business licences, municipalities administer the licensing of commercial vehicles.