How to Start a Corporation in Canada

How to Start a Corporation in Canada

Did you know that there are various business structures available in Canada? Among the most prevalent types is a corporation, often recognized by the abbreviation “Inc.” appended to its name.

However, understanding the process of incorporation for your brick-and-mortar or online business can feel overwhelming due to the abundance of advice available.

But fear not, this article aims to provide you with all the necessary information on how to incorporate a business in Canada, including its advantages, disadvantages, and the steps involved. Continue reading to gain crucial insights.

What is incorporation?

Incorporating your business involves establishing a legal entity known as a “corporation.” This creates a separate entity with its own rights and obligations.

In most cases, the law treats a corporation as distinct from its owners, allowing it to conduct activities in its name, such as entering contracts, opening bank accounts, and paying employee salaries.

Ownership of a corporation can be divided among multiple individuals, enabling the distribution of profits through dividends.

While this is a common method of sharing ownership, it’s not the only option available. Incorporation offers several advantages compared to being self-employed as a sole proprietorship, although there may be some drawbacks to consider.

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Types of corporations in Canada

The Canadian legal framework permits corporations to be registered at both federal and provincial levels.

While corporations represent the primary entity type in Canada, there are also other legal structures that can adopt the form of a corporation, including non-resident companies and extra-provincial corporations.

If you’re considering starting a business in Canada and wish to pursue incorporation as your preferred business form, our comprehensive step-by-step guide can assist you.

A step-by-step guide to starting a corporation

Establishing a corporation in Canada entails choosing one of the 13 jurisdictions, be it at the provincial or territorial level, or at the federal level.

The responsibility of registering companies lies with the Canada Business Incorporations, the authority issuing registration certificates for firms.

The following is a detailed step-by-step guide to help you navigate the incorporation process successfully.

Step 1: Choose a Jurisdiction

In Canada, businesses generally have the choice to incorporate either at the federal level or at the provincial level (or within a territory).

Your decision depends on your business plans. If you anticipate conducting business outside your province or territory, federal incorporation might be preferable.

Otherwise, opting for provincial incorporation could be a suitable option.

Here’s a concise overview of federal and provincial/territorial incorporation:

Federal Incorporation

  • Name protection throughout Canada
  • Flexibility to choose a head office location anywhere in the country
  • Requirement for at least 25 percent of directors to be Canadian citizens or permanent residents
  • Possibility to conduct business nationwide with appropriate licenses

Provincial or Territorial Incorporation

  • Lower cost
  • Faster process
  • Fewer administrative procedures
  • Different rules compared to federal incorporation (e.g., share issuance)
  • Potential need for an “extra-provincial” license to operate outside the province of incorporation

Keep in mind that changing your decision later might result in additional fees and paperwork.

Nonetheless, regardless of your choice, conducting business across Canada and internationally remains possible as long as you comply with relevant legislation and acquire the necessary licenses.

The Canadian government provides a list of authorities responsible for provincial and territorial incorporation.

Step 2: Confirm Your Legal Status

While most private for-profit companies opt for corporation status, it’s prudent to ensure that no other legal status better suits your business.

Other options include general partnerships (GP), limited partnerships (LP), joint ventures, and, depending on your activities, non-profit organizations, cooperatives, associations, or trusts.

The chosen legal structure may impact tax regulations and liability, making it essential to consider these factors.

Step 3: Choose and Register a Name

The simplest and quickest option involves requesting a numbered name from the provincial or federal authorities during the incorporation process.

This name consists of a unique number, the place of incorporation (e.g., “Canada”), and the abbreviation “Inc.”—commonly known as a numbered corporation.

However, many businesses prefer a word name for marketing purposes, as it is easier for people to remember and pronounce.

Additionally, the chosen name must include a legal element, such as “Inc.” or “ltd.” In some cases, a description of the products or services may be required.

Certain professionals, such as dentists, optometrists, and lawyers, can also include their professional title in the name.

Complying with the rules and standards for company names is essential, and verifying name availability beforehand can prevent last-minute disappointments.

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Step 4: Complete the Necessary Paperwork

Each jurisdiction has its own paperwork requirements and deadlines.

You may need to provide details such as

  • the number and names of shareholders and directors,
  • the head office address,
  • share classes and associated rights (voting, dividends),
  • sector of activity,
  • company by-laws, f
  • fiscal year start date
  • provisions for liquidation or dissolution.

While standard templates are available, seeking professional assistance from a lawyer or accountant, especially for multi-shareholder companies, is advisable.

Most documents and relevant professional help can be found online.

Step 5: Fulfill the Fee Requirements

Fees for incorporation vary across jurisdictions. Typically, incorporating your business will cost a few hundred dollars.

If you choose federal incorporation, you may also be required to pay fees to the province or territory. Online payment options with credit cards are often available.

Step 6: Obtain the Certificate of Incorporation

Once your application is processed, you will receive the necessary licenses and certificates for your business.

Take the time to verify the accuracy of the information in the business registry and update it if necessary.

Depending on the jurisdiction, you may need to submit additional forms to update your information or renew your registration annually.

Step 7: Finalize the Internal Structure

After incorporating your company, you and other shareholders must contribute capital to the business by subscribing for shares.

The directors will establish company by-laws, set a head office location, determine the fiscal year’s end date, and appoint officers.

It’s important to recognize that the roles of shareholders, directors, and officers are distinct, even though the same individual may hold multiple positions.

If your company has multiple shareholders, consider creating a shareholder agreement to manage day-to-day operations and make critical decisions.

This agreement should also address contingencies such as shareholder death, disability, or other significant events.

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Benefits of incorporating a business

Aside from the limited liability and tax benefits mentioned earlier, incorporating your business offers at least four additional advantages:

Raising Capital

Incorporation allows you to sell shares to investors, making it easier to secure investment for your company.

Professional Image

Clients perceive your business as more professional when it is incorporated. Invoices bearing your incorporated business name (with “Inc.”, “Ltd.”, or “Corp.”) signal your commitment to long-term viability and the fulfillment of obligations.

Transferability

Shares of corporations can be transferred among individuals, simplifying long-term succession planning.

Continuous Lifespan

Unlike other business structures, corporations are not limited by the lifespan of their owners. They can exist indefinitely, providing stability and continuity for the business.

Cost of incorporating a business in Canada

The cost of incorporating a business in Canada can vary depending on the jurisdiction and the method you choose.

One option is to use a service like Ownr, where the total cost ranges between $499 and $699, covering government fees, name search fees, company formation documents, and a 12-month subscription to the Ownr platform. This streamlined process offers convenience and savings.

Alternatively, you can directly approach the government for incorporation, and the fees will differ based on your jurisdiction and type of incorporation.

Here are the approximate costs for some provinces:

  • British Columbia: Incorporation in British Columbia costs around $350 CAD, with an additional $30 charge for name approval.
  • Alberta: In Alberta, the cost of incorporation is approximately $450 CAD, along with a $30 fee for name approval.
  • Saskatchewan: Incorporation in Saskatchewan amounts to around $265 CAD, and there is a $60 fee for a search report for named corporations.
  • Manitoba: The government incorporation fee in Manitoba is roughly $300 CAD, plus a $49 fee for a search report for named corporations.
  • Ontario: In Ontario, the cost of online or mail-based business incorporation is approximately $300 CAD, with an additional $60 fee to register your business name.
  • Quebec: Incorporation in Quebec is approximately $367 CAD, and there is an additional $50 fee for the business name search.
  • New Brunswick: In New Brunswick, the cost of incorporation is around $290 CAD, inclusive of a government fee of $260 and a $30 fee for a name search report.
  • Nova Scotia: The fee for incorporation in Nova Scotia is approximately $200 CAD, along with a $70 fee for a name search report.
  • PEI: Incorporation in PEI costs approximately $255 CAD, covering the government fee and the name search report fee.
  • Newfoundland: In Newfoundland, the cost of incorporation is roughly $300 CAD, with an additional $300 charge for a name search report.
  • Yukon: Incorporation in the Yukon costs approximately $345 CAD, which includes a basic government charge and a corporation name search fee.

It’s important to note that government filings completed independently may still require paperwork and additional costs to ensure compliance with business regulations.

Hiring a legal professional is highly recommended to assist with document preparation and compliance.

Is compliance causing you stress?

If you find the compliance process overwhelming, there is an easier way. Consider incorporating with Ownr, where you can avoid additional fees for government filings.

Ownr provides a one-stop solution, including a full year of their Online Minute Book plan, company name registration, company organization documents and share issuances, and access to Ownr Perks.

How to start a corporation conclusion

Incorporating your business in Canada offers numerous benefits and legal protections. By following the step-by-step guide and considering the costs involved, you can make informed decisions and establish a solid foundation for your corporation.

Remember, seeking professional advice when necessary ensures that you comply with regulations and sets your business up for future success.

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FAQs about how to start a corporation

How much does it cost to start a corporation?

Incorporation fees on Ownr range from $499 to $699, varying according to your specific location. This comprehensive package encompasses government charges, expenses related to name search, vital company formation paperwork, and a 12-month subscription to the Ownr platform. Begin the process effortlessly and establish your company promptly through Ownr's streamlined services.

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July 17, 2023
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