What is an Incorporation?

Incorporation is a type of business ownership that constructs a separate legal entity from its shareholders. It is different from other legal business structures such as sole proprietorship and partnerships. A corporation can be either private or public. When a corporation is created, each shareholder gets shares proportional to the percentage of ownership.

4 benefits of incorporating

1. Limited liability

If you incorporate and your company goes somewhere else, your assets will remain protected. However, suppose you operate your business as a sole proprietorship or a partnership. In that case, you will remain personally responsible for the business's debts, which can put your personal property, such as your home, car, all at risk.

2. Easily transferable

Corporations are very beneficial because you can quickly transfer them among individuals by selling or transferring shares. This enables long-term succession planning to be much more accessible.

3. Tax advantages

In Canada, corporations are taxed differently than individuals. The tax rate on corporations is lower than the tax rate for individuals. You can reduce the taxes you pay whenever you can leave some money in the corporation. You also have the option of choosing how you get paid. 

4. Raising capital

If you need investors who can invest in your company, you need to be incorporated. Without incorporating your business, you cannot have shares to sell to the investors.

Decide Whether to Incorporate Federally or Provincially

Federal Incorporation

When you decide to incorporate your business federally, you get the following advantages:

• A federal corporation can run business in all provinces and territories.
• It can use the same name in each province or territory, even if another company is already doing business under a similar name.
• A federal corporation gets recognition on international level.

Provincial Incorporation

When you incorporate your business provincially, you get the following advantages:

• Easy transferability of shares between the owner and investors.
• Attractive towards investors due to its limited liability. If any loss occurs, the investor is free from the compensation of that loss.
• If you incorporate provincially, your corporation has the right to carry on business in the province where your company is incorporated.

The decision to incorporate federally or provincially depends more on your company's scope than anything else. For more information about Federal vs. provincial incorporation, you can read our article, Federal Vs Ontario: Which Incorporation is Best for You

Incorporating your business in Canada

1. Choosing a business name

Choosing a corporate name for your business can be a little stressful, but it’s fun at the same time. Of course, you can always incorporate a numbered company (12345678 Canada Inc). Then you can select a name a few days later. But most entrepreneurs prefer to give their business a name and have it legally registered.

A corporate name cannot include falsification of your business. For instance, it cannot imply that you are a branch of government or that your business is aviation when you sell shoes. So be careful while choosing a business name.

2. Have a business name searched

It doesn’t matter where you incorporate your business in Canada. You will need to have a name search done to ensure the suitability of the corporate name you have selected. If you incorporate federally or in provinces, Ontario, you will need to have a NAUNS search done.

If the search results get approved, and your name is accepted, it is then reserved for a couple of days. During this time, you must complete the incorporation process for your business or restart the procedure again.

3. Prepare Your Documents

To incorporate your business, you need to prepare the following documents:

The Articles of Incorporation: The rules and regulations that will control the conduct of the company members.

The Notice of Offices: It provides the location of the two required offices for your corporation. Firstly for the registered office and secondly for the record's office.

The Memorandum: It contains the rules for the conduct of the company.

4. File Your Documents and Apply for Incorporation

You can incorporate your business online by using the websites of corporations Canada and the provincial registries. You can also submit your application for incorporation by mailing the forms and fees to the appropriate registrar. Then you are ready to run a corporate business.

Finals Words!

Incorporation can be a big decision for an entrepreneur, and there is a lot of advice that can make it seem more complex than it is. But you don't need to stress over it. We are always there to guide you and provide assistance about incorporating your business in Canada. Yogi & Associates is a reliable advising tax firm having an experience of 25 years with more than 2000 clients served. You can easily find us in Mississauga or Book an Appointment with us.