You’re about to start a business – or you’ve been operating your small business for some time and it’s progressing nicely – and someone suggests that you should ‘incorporate’ or operate ‘through a company’. What does that mean? And what is involved?
‘Incorporation’ is a process governed by provincial (or federal) law. Briefly summarized, a ‘corporation’ or ‘company’ is a legal entity consisting of shareholders and one or more directors, and is usually formed to conduct business. Because it is a legal entity – distinct from its shareholder(s) and director(s) – it pays taxes, can sue or be sued, can enter into contracts, can earn money, and so on. Whether you should ‘incorporate’ or operate your business through a company depends on your situation – what your business does, how much revenue it generates, how you wish to pay that revenue to yourself (or others), how much protection you need from liability, and so on. There are many different reasons for choosing to incorporate, such as:
- whether incorporation would offer you some tax savings;
- whether you need or would like some protection from liability for your operations;
- whether you need to raise capital for your business’ operations or expansion; and/or
- whether you need to transition your business to another person (e.g., your children).
There are other reasons to incorporate, but these are some of the most common reasons.
Incorporation involves registering certain documents with the province and receiving a Certificate of Incorporation. The process involves establishing a share structure and appointing one or more directors to manage the company, picking a name for the company (or receiving a number from the corporate registry), issuing shares to the shareholder(s), and putting certain by-laws of the company into place. A records book, with certain prescribed information, is required to be kept, and the company will have to file a report with the corporate registry each year.
To decide whether to incorporate is a big decision, and should be guided by legal and accounting advice. For example, do you need a Unanimous Shareholders Agreement? How should you structure the corporation’s shares? How should you sign documents for the corporation? What are your duties as a director of the company? How do you pick a company name without ‘stepping on anyone else’s toes’?
For all of these questions – and to guide you through the incorporation process – contact Stephen Mogdan at Stringam Denecky LLP. Stephen has extensive experience in corporate/commercial law and can offer you sound, business-oriented legal advice.