Canadian Incorporation FAQ

1. What is a corporation?
2. What are Shareholders, Directors and Officers?
3. What are the benefits and drawbacks of incorporation?
4. What is the difference between a Named Corporation and a Numbered Corporation?
5. Do I need to register my business name in order to incorporate?
6. How long will it take to incorporate and how much will it cost?
7. Should I incorporate my business federally or provincially?
8. What are the residency requirements to incorporate in Canada?
9. Do I need a lawyer to incorporate?
10. Can one person incorporate a company?
11. What is a Shareholders' Agreement and do I need one?
12. What is a "Corporate Minute Book" and do I need one?
13. What is a "Corporate Seal" and do I need one?
14. What are the ongoing obligations of a corporation?
15. How do I make major changes to my corporation (such as a change of name)?
16. How do I close my corporation?

1. What is a corporation?

A corporation is a legal entity that can be created pursuant to federal or provincial law. Under the law, a corporation is considered to be a distinct legal entity (legal person), separate from its shareholders (owners), directors and officers. A corporation may own property in its own name, it may acquire rights, obligations and liabilities, it may enter into contracts and agreements, and it has the standing to sue and be sued as a distinct legal entity.

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2. What are Shareholders, Directors and Officers?

Shareholders - Shareholders are the legal owners of the corporation. Shareholders can be individuals or other corporations, but every corporation must have at least one shareholder who has voting rights, the right to receive dividends, and the right to receive any remaining assets from the corporation upon dissolution. In many small corporations the sole shareholder is also the corporation's sole director and officer.

Shareholders ultimately control the corporation through their ownership of shares with voting rights, because they have the power to vote for the election and dismissal of the board of directors, and the power to review and approve the corporation's financial statements. In most cases, each voting share carries one vote. Where a corporation has multiple shareholders, the shareholder with a majority of voting shares is known as the controlling shareholder.

Directors - Directors are individuals elected by a corporation's shareholder(s) to supervise the management of the corporation.  Directors make all major decisions for the corporation and they assume certain liabilities of the corporation pursuant to statute. All corporations must have a minimum of 1 director, and only individuals (physical persons) can be directors. Directors may also be officers and shareholders, but this is not mandatory.

Officers - Officers are individuals appointed by the corporation's director(s) to manage the daily affairs of the company. Officers commonly assume senior management titles such as President, Vice-President, Treasurer, Secretary, Chief Executive Officer, Chief Financial Officer, etc., and a single officer can hold more than one position. All corporations must have a President and Secretary, however both positions can be held by the same person. Although officer positions are distinct from that of director, officers can also be directors and shareholders.

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3. What are the benefits and drawbacks of incorporation?

Incorporation provides the following important benefits:

Limited Liability - The corporation’s greatest advantage is that it allows for limited liability to a maximum amount equal to the amount of share capital each owner (shareholder) has contributed to the business. Unlike sole proprietorships and partnerships, where all the personal assets of the owners can be seized to pay for business debts, obligations and liabilities, as the owner of a corporation, you generally cannot be held personally responsible for all of the corporation’s debts and other liabilities.

Corporate Name Protection – Corporate names are unique within the jurisdiction of incorporation. Only one corporation can have a particular name, and no one else is permitted to use the name (or a confusingly similar version of the name) to identify their business. Corporate name protection can help to protect the company's brand and image by providing exclusive rights to the name.

Tax Benefits – Corporations have access to numerous tax benefits and tax planning opportunities which are unavailable to other forms of business. Income splitting, management bonus deferrals, capital gains exemptions and, in some cases, reduced tax rates/tax credits are all benefits which are only available to incorporated businesses, and which may significantly reduce or defer a corporation's tax liability.

Access to Capital – Corporations generally have easier access to capital than unincorporated businesses. Corporations are able to issue a variety of securities, such as shares, bonds and debentures to raise funds. This allows corporations to be much more flexible and creative in securing capital than other forms of business.

Continued Existence - Because a corporation is a separate legal entity, it does not rely on the lives and participation of its shareholders, directors or officers for its continued existence. A corporation will continue to exist even if its shareholders die or leave the business, or if the ownership of the business changes. This provides the business with more stability and certainty than an unincorporated business, which constantly relies on the continued participation of its proprietor or partners.

Drawbacks to incorporation include additional regulation/record-keeping requirements and higher costs. Corporations are more highly regulated than other forms of business. It is necessary to maintain up to date corporate documentation (including a corporate minute book, by-laws & resolutions) and to file one or two corporate tax returns each year. Given the extensive record-keeping and accounting requirements, corporations are also more expensive to establish and maintain than other forms of business.

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4. What is the difference between a Named Corporation and a Numbered Corporation?

Companies can be incorporated using a name selected by the incorporator(s), or they can be identified using their corporation number assigned by the Government (ie. 123456 Canada Inc.).

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5. Do I need to register my business name in order to incorporate?

Part of the incorporation process normally involves the registration of a corporate name, which is generally the same name used to identify the business. If your business name will be different from the corporate name, the business name will need to be registered separately as a trade/operating name.

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6. How long will it take to incorporate and how much will it cost?

Information on timelines and costs for our various incorporation packages can be obtained by completing a Quick Quote.

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7. Should I incorporate my business federally or provincially?

Please refer to our detailed article entitled Selecting a Jurisdiction of Incorporation.

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8. What are the residency requirements to incorporate in Canada?

Each jurisdiction has its own requirements concerning the residency of a corporation’s directors. Residency requirements by jurisdiction are as follows:

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9. Do I need a lawyer to incorporate?

It is always advisable to seek legal counsel when considering incorporation; however it is possible to incorporate a company without the assistance of a lawyer.

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10. Can one person incorporate a company?

One person can incorporate a business corporation and hold one or more positions, such as Shareholder, Director and President. Not-for-profit corporations usually require a minimum of three directors.

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11. What is a Shareholders’ Agreement and do I need one?

If your corporation has more than one shareholder, it is strongly recommended that you retain a lawyer to draft a Shareholders’ Agreement. Such an agreement typically defines the roles and responsibilities of the corporation’s directors, officers and owner/shareholders and outlines important procedures such as distribution of assets upon dissolution of the company, succession planning, the decision-making process, authorization of legal documents, and other important matters.

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12. What is a “corporate minute book” and do I need one?

A corporate minute book is a book or binder which holds corporate records, such as the Articles of Incorporation, By-laws, resolutions of directors and shareholders, ledgers and registers. A corporate minute book facilitates the mandatory document retention process and may be purchased from New Business Now.com. 

Click here to purchase a corporate minute book from New Business Now.com

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13. What is a “corporate seal” and do I need one?

A corporate seal is a mechanical embossing device that allows you to affix your company name to documents. The corporate seal is used to authenticate the validity of documents signed by directors or officers of corporations, and it is used as a fraud prevention tool. 

Click here to purchase a corporate seal from New Business Now.com

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14. What are the ongoing obligations of a corporation?

A corporation is required to comply with all federal, provincial and municipal laws in any area where it operates and to exercise due diligence. Annual meetings must be held and officially recorded as required. In certain cases, an Annual Report/Annual Summary must be filed with the government each year in order to keep the corporation active. Finally, any changes that affect the corporation or its operation, such as name changes, address changes, or changes of shareholders, directors or officers, must be appropriately documented and reported to the appropriate government agency.

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15. How do I make major changes to my corporation (such as a change of name)?

In order to make major changes to your corporation after you have received the Articles of Incorporation, you must generally file Articles of Amendment.

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16. How do I close my corporation?

The proposal to voluntarily close or dissolve a corporation must be voted on at a meeting of the company’s shareholders. If the shareholders approve dissolution as required, the corporation's debts must be paid, and Articles of Dissolution must be filed.

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For more detailed information on these, and related topics, please click on the links below:

• 10 Steps to Creating a Corporation
• How to Create a Great Business Name
• What is a Name Search and When Do I Need One?
• How to Select the Best Structure for Your Business
• Selecting a Jurisdiction of Incorporation
• Options for Foreign Corporations Wishing to Do Business in Canada

The information presented in the document above is provided for reference purposes only and is
not intended to be a substitute for the appropriate legal advice of a competent, professional lawyer.
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