Incorporation in Canadian Business
The Basics About Incorporation
Incorporation is a that creates a distinct legal entity separate from its owners (shareholders).
When a corporation is created, each proportional to the percentage of ownership. A corporation can be private or public. Public corporations (such as IBM, General Electric) trade shares on stock exchanges such as the Toronto Stock Exchange (TSE) or the New York Stock Exchange (NYSE).
Theoretically, no owner of an incorporated business can be held personally liable for the debts, obligations, or acts of the company. The limited liability protection is one of the main reasons that businesses choose incorporation over other forms of businesses such as and . Normally a shareholder is only liable for the unpaid portion of shares owned.
However, there are situations where directors of the company can still be held personally liable even if the company is incorporated:
Debts - if your business is a and needs it is unlikely that any financial institution will provide without personal guarantees from the business owners. If your and is unable to make the loan payments, whatever personal posted by the owners as can be seized by the bank, including houses, vehicles, investment accounts, etc.
- Negligence - if in the course of doing business you commit an act of negligence that causes personal injury to someone else you can be held personally liable (for example, as a carpenter you construct a deck that is unsafe and the customer is injured).
- Fraud - the directors of a company can be held personally liable for acts of fraud. Directors have a fiduciary duty to manage the company's finances in a responsible fashion - mishandling company funds or assets, inflating company revenues or assets in public statements, or falsely claiming are examples of acts of fraud for which the directors can be sued.
- Failure to pay taxes, file annual reports, or hold directors meetings.
Most businesses (whether incorporated or not) carry to protect against damage claims for negligence, such as and general liability coverage.
Where Can You Incorporate?
While is the same no matter where you incorporate in Canada, incorporation may be done provincially, giving a company the right to operate under its corporate name in a particular province. Federal incorporation gives a company the right to operate under its corporate name throughout Canada. explains the disadvantages and advantages of these two basic types of incorporation. However, as you'll discover, the choice is not strictly an either-or situation; if you incorporate federally, you'll still have to incorporate provincially as well.
If you choose federal incorporation you need to go through the procedure of incorporation through . (Corporations Canada administers the CBCA (). There are offices in Vancouver, Ottawa, Montreal, and Toronto.) You can incorporate your business online, or get the forms you need to file as part of the incorporation process by automatic fax, Internet or mail.
To incorporate federally you must submit the following documents:
- A approving the you have chosen for your company (unless it is a numbered company).
See the website for a list of fees for incorporation, annual returns, corporate amendments, etc.
If you choose provincial incorporation, you need to contact the appropriate Provincial Registrar. All the provinces and territories have websites which offer online provincial incorporation. There are also companies that offer incorporation services, both federal and provincial.
Learn more about , including:
Examples: Tamara found that incorporation was necessary for her company, because other companies that she wanted to perform work for insisted that all contractors be incorporated.