To Incorporate or Not to Incorporate

Carrying on business as a corporation offers certain distinct advantages over other methods of carrying on business. Whether to incorporate or not will, however, depend upon a number of factors, including:

Limited Liability: The liability of a shareholder of a corporation is generally limited to the amount of capital invested (money paid by the shareholder to acquire the shares of the corporation). The personal assets of the shareholder are generally not available to creditors to satisfy the liabilities of the business.

Perpetual Existence: A corporation has perpetual existence, meaning that its existence is not affected by the death or withdrawal of a shareholder.

Number of Shareholders: A sole proprietorship, by its very nature, only involves one person; and a partnership can become cumbersome if a large group of individuals wishes to be involved. Therefore, if the number of investors of the business is going to be large, incorporation is generally the only viable arrangement to carry on such business.

Taxation: The Income Tax Act (Canada) provides certain incentives and benefits that are available only to corporations.

Estate Planning: A corporation can be used as an effective estate planning vehicle.

Borrowing requirements: A corporation can raise money from the general public by issuing securities.

Incorporation Procedure

In Ontario, one may incorporate either in the federal jurisdiction and pursuant to the Canada Business Corporations Act or in the provincial jurisdiction and pursuant to the Business Corporations Act (Ontario).

Incorporating federally is beneficial where the business will be carried on in more than one province or territory in Canada, or the business will have an international flavour. In addition, even though federal corporations must comply with the extra-provincial registration requirements of each province or territory in Canada, generally a federal corporation’s name will be permitted to be used without difficulty.

An Ontario corporation, on the other hand, is useful for a business that will not be carrying on its business outside of Ontario and certain types of corporations, such as professional corporations, must be incorporated under provincial legislation.

Incorporation is available as a matter of right and is accomplished by delivering Articles of Incorporation together with supporting documents and prescribed fee to Industry Canada, Corporations Canada for federal incorporations and the appropriate department of the Ministry of Government and Consumer Services for Ontario incorporations.

Incorporation can be completed either as a number or a named corporation. A number name is suitable for a corporation that does not intend to have dealings with the public (i.e. a family holding corporation). For incorporation as a named corporation, the proposed corporate name cannot be the same or similar to any existing business entity. Therefore, a name search report must be submitted as part of the incorporation package. Obviously, this requirement does not apply to a number corporation as the corporation is simply assigned a number by the incorporating body.

Please contact me to discuss your incorporation and organizational needs.

It is hoped that the new business registry becomes active very soon so that the not-for-profit sector in Ontario can finally utilize the modern corporate law regime over envisioned 10 years ago.

This article contains general information about certain legal and other related developments. It is not intended to be a complete statement of the law and is not a substitute for legal advice. To receive legal advice, you must speak with a lawyer. No part of this publication may be reproduced without the prior written permission of Kimberley A. Cunnington-Taylor.

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