What is a Corporation?
A corporation (also called "company") is a legal entity that has its own legal personality which is distinct from its owners (called shareholders) and the individuals who manage and run its affairs and business (called directors and officers). The creation of a corporation occurs following the proper filing of Articles of Incorporation (also called a Charter, Certificate of Incorporation or Letters Patent) with the relevant government department or authority.
Every corporation is comprised of shareholders, directors and officers. Shareholders, as the name implies, are the ones who hold (i.e., own) the shares in the corporation. By reason of the votes that are usually attached to the shares, the shareholders control the corporation. If there is only one shareholder, that person has absolute control of the corporation. If the corporation has numerous shareholders, control of the corporation depends on who has a majority of the voting shares. However, the shareholders do not directly manage the corporation. They exercise their influence by electing and removing directors and approving or disapproving major corporate decisions.
Why Should I Incorporate my Business?
There are several features that are unique to a corporation which make it the favoured legal structure for many businesses. These include:
On the other hand, incorporating your business is subject to the following formalities:
Where Should I Incorporate My Business?
The question as to where you should incorporate your business involves deciding whether your business should be incorporated under the federal laws of Canada (i.e., a federally chartered corporation) or under the laws of one of the provinces of Canada (i.e., a provincially chartered corporation).
There are advantages and disadvantages to both and there is no one best solution. Deciding which jurisdiction to choose may depend on the answers provided to these questions:
Do you plan on doing business in more than one province?
What percentage of the corporation's directors will be residents of Canada, if any?
Do I want to have 2 annual corporate reports (one for federal and one for provincial)?
Do I want to save money now for incorporation, even though it may cost me more in the long run?
Below are the most common factors that are used to decide where to incorporate.
If you intend on carrying on business only in one province, you may choose to incorporate a provincial corporation under the laws of that province or a federal corporation.
A federal corporation is generally entitled to carry on business anywhere in Canada under its name, subject only to registering in the province where business is carried on. There generally are provincial registration fees (except in Ontario and P.E.I.) that must be added to the incorporation fees of a federal corporation (will be detailed below).
The requirement for a federal corporation to register extra-provincially in the province must usually be satisfied within 30-60 days after starting to do business in the province.
Do I Need an Attorney to Incorporate?
There is no legal requirement that an attorney incorporate your business. You can prepare and file the government forms yourself. You may read the government forms and guides if any to assist you. Or you can choose a service like INSTACORP.ca to file your application on your behalf. You may of course consult with a lawyer who can specifically advise you on your specific circumstances.
How to Select a Corporation's Name?
Choosing a corporate name is probably the most difficult task of incorporating a business. Every corporation must have an acceptable name at the time of their incorporation because the corporation will then exercise its rights and carry out its obligations under this name. All corporate names must conform to various statutory requirements. You may wish to review the relevant acts and regulations of your jurisdiction.
The most common concern when trying to select a corporate name is that corporate name cannot be identical to or lead to confusion with another corporation or business already using an identical or similar name.
A corporate name is generally made up of 3 parts:
The distinctive element of the name is the part that makes distinctive from other corporations, i.e. what makes them different. The more different or fanciful the name the better.
The descriptive element describes the main activities or type of business of the corporations.
The legal ending indicates that it is in fact a legal corporation and not just a business registration or partnership. You can choose from the following words: Incorporated, Limited and Corporation, or their respective abbreviations: Inc., Ltd. and Corp.
All corporations MUST have a distinctive element and a legal ending to their names. Some corporations choose not to have a descriptive element.
For example, in the name "Tiger Computers Inc." the word "Tiger" is the distinctive element; the word "Computers" is the descriptive element; and the "Inc." is the legal ending.
Restrictions on Corporate Business Names
Your corporate name cannot be identical to or lead to confusion with another corporation or business already using an identical or similar name. The criteria typically used to determine if there is confusion include:
Also, there are certain words that are typically prohibited for business corporations. These include: