What are the benefits of incorporating a Canadian business?
If you are considering starting a new business in Canada or already an owner of an established business, there are important advantages to be gained from incorporation. Incorporating creates a new and separate legal entity for your business, shielding your personal assets and providing a more formal business structure.
Your new corporation will have the same rights and obligations under Canadian law, and will be seen as a separate, legal entity. This means the entity can acquire assets, obtain loans, enter into contracts, sue or be sued, and even be found guilty of committing a crime. Your corporation's money and other assets belong to the corporation, separated from the shareholders and/or owners of the business.
How does forming a corporation in Canada protect my personal assets?
Incorporation limits the liability of the corporation's shareholders to the amount of their investment. If under unfortunate circumstances your business should declare bankruptcy, the shareholders of the business don't lose any more than their investment. The shareholders cannot be sued by creditors for repayment of the business' debts.
Who does a Canadian corporation pay taxes to?
Each Canadian province has its own statutes governing corporations operating within their borders, and companies that choose to form a corporation in a specific province must only do business in that province. Canadian corporations will have to pay the corporate tax rate set by the province and federal government. Anyone who derives an income from a permanent Canadian fixture must also pay Canadian income tax. Americans that act as an officer, director, or own shares in a Canadian corporation must fill out Form 5471 (PDF)(257 KB) and attach it to their U.S. income tax return.
If your corporation earns more than $30,000 a year, you will have to register for a GST/HST Account with the Canada Revenue Agency.
Since every business has unique circumstances, the best way to find out if incorporation is right for you is to consult with a lawyer or an accountant to assess the potential benefits.
What is the difference between Provincinal and Federal incorporation?
One of the first decisions you will need to make when incorporating your business is deciding if you will create a provincial or federal corporation. We already explored provincial corporations, where the corporation formed in a specific province must only do business there. Forming a corporation at a federal level means you can do business in any province. It also affords your business protection from having your company name used by another corporation in a different province, although we do recommend filing a trademark with CIPO ( Canadian Intellectual Property Office) to retain the full rights to the mark.
Once you have decided whether to incorporate at a provincial or federal level, you will need to register with the department that handles incorporations in your chosen province.
Then, you will need to conduct a Nauns name search to ensure your desired business name is available. A Nuans report is a list of existing corporate and business names, as well as trademarks, that are similar to the one being proposed. A Nuans report helps avoid choosing a name that is already in use. Keep in mind that a Canadian corporation search is mandatory when registering a federal Corporation in Canada.
Once approved, you may file your Articles of Incorporation and name a registered agent that can accept services of process on the corporation's behalf. Remember that if you choose to incorporate at the province level, every province comes with its own set of requirements. Research their laws accordingly to make sure you do not forget anything crucial for your business. When you file with MyCorporation, we handle this for you on your behalf, no extra effort is required. You can learn more about the differences between Federal and Provincinal incorporation here.
How do I choose between a Federal and Provincinal Corporation?
There are a few considerations to keep in mind when choosing whether to incorporate in a federal or provincial jurisdiction. First will be the level of protection you wish to have for your corporate name. Even though both Federal and Provincial jurisdictions require that a corporate name not be confusingly similar with another name, the rules are applied differently from Province to Province.
Incorporating federally under the Canada Business Corporations Act (CBCA) provides much greater protection for your corporate name, as names are more thoroughly analyzed by the federal government. While that means your name may be harder to get approved, it demonstrates that federally registered corporate names are much more protected. When filing in a Provincial jurisdiction, the name is much more likely to be accepted unless it is identical to previously registered name. In some cases, a similar name may be registered and approved in another Province due to the less 'strict' nature of the search.
Another consideration to make is the cost of incorporating your business. When you register a business on a federal level, you must also register extra-provincially in one ore more Provinces ( except for Ontario and Prince Edward Island ). Extra-provincial registration is a process that both Canadian corporations in Canada and foreign corporations must complete when they seek to do business in Canada or in various provinces or territories throughout Canada. This means that you will need to register Federally and in each Province, paying the fees for all registrations.
The last consideration to makes is where you want to register your business. Every Province requires that your corporation retain an address within the Province if you wish to conduct business there. You can optionally appoint a registered agent within a Province to accept service of legal documents and as a contact point for the corporation.
What information is required to Incorporate your business in Canada?
To register a federal corporation in Canada, you will need to provide some basic information about the business including:
- The name and address of the business you want to register.
- A NUANS report conducted in the last 90 days
- A description of the business activities.
- The names and addresses of each director (a minimum of 1 is required)
- The names and addresses of each shareholder (a minimum of 1 is required)
How are Canadian corporations regulated?
Canadian corporations adhere to a 'comply-or-explain' system where they explain their reasons for non-compliance with company laws in their annual report. This allows many Canadian corporations the ability to define their own growth and development strategies, so long as they are explained to shareholders first.
