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Incorporation in Canada

Congratulations—you’ve incorporated your business! Now, certain things must be done to keep your company up-to-date and CRA compliant.

Remember, you’re no longer your company

You’ve heard it before… a corporation is a “separate entity”.  

But what does this mean?  

It’s like another person. It has the power to enter into contracts, pay and receive money, sue, and be sued. Once you have a corporation, you should not be doing business in your personal name anymore. Any contracts, agreements, or other documents you draft should be in the company name. This way, should things go wrong, you’ll not be personally liable (Note: there are certain instances where directors can be personally liable, talk to your small business lawyer if you have any concerns.)

Here are some of the steps that you need to take after incorporating and a few important things you should remember.

1. Register your new corporation with the CRA

Obtaining your CRA Business Number will depend on the type of incorporation you chose. For Federal Corporations, the process is instant and for provincial corporations, the process can take longer and may require additional registrations.

2. Open a Corporate Bank Account

Your business is now incorporated and you are ready for business. Your corporation is a distinct legal entity, separate and apart from you. It can sue and be sued, it can own assets, and transact business and it, therefore, needs a bank account, separate from your personal account. To open your corporate bank account, banks may request the corporation’s certificate and articles of incorporation and you may need to fill out some bank forms.

Organize Your Corporation

Organizing your corporation means putting a structure to it and assigning responsibilities within the corporation. After incorporation, the incorporators or first directors need to call the first meeting of directors to organize the corporation or sign organizing resolutions approving and adopting organizational resolutions. At the first meeting of directors or through corporate resolutions, the corporation will:

a) Issue shares from the authorized share capital of the corporation. SMEs may start with the incorporator being the sole shareholder. As legal proof of share ownership, the corporation will create and issue share certificates for each of the shareholders of the corporation. Share certificates show the class and number of shares held by shareholders. If you have more than one shareholder within the corporation, prepare a Shareholders Agreement. 

b) Appoint Directors: The shareholders appoint directors to oversee the activities of the corporation. Again, the sole shareholder may be appointed as the sole director.

c) Appoint Officers: The directors of your corporation appoint the officers – President, Secretary, and Treasurer.

d) Create Registers and Ledgers: The corporate register is a list of your corporation’s shareholders, directors, and officers. The shareholders’ ledgers show the class and number of shares held by each shareholder of the corporation. 

e) Appoint an Accountant for your corporation

f) Minute Book: Keep all corporate records in a minute book. You will keep records of corporate documents such as your corporation’s:

  • Certificate of Incorporation
  • Articles of Incorporation
  • General Corporate Bylaws
  • Banking Bylaws 
  • Minutes of company meetings, agreements, and resolutions
  • Copies of initial returns and forms filed with the Ministry
  • Ledgers and Registers
  • Share Certificates

You are required to keep your corporate records up-to-date and in compliance with the law. Your minute book should be well-organized and kept by a professional.

4. Find out if you need to charge GST and/or PST

Determine whether you will register for a GST/HST Number. When you incorporate, you’ll be assigned a Business Number. You should check with the Canada Revenue Agency to determine if you’re required to register for a GST/PST account and you can use your Business Number to register.

If you operated a business before incorporating, you will need to close down your old GST/HST Number, if you had one, and open a new one under the name of the corporation.

5. Annual Return And Resolutions

The law requires each corporation to file annual returns with the government and prepare shareholder and director resolutions yearly. These documents are mandatory for your business to be compliant with the provisions of the Ontario Business Corporations Act (OBCA) and Canada Business Corporations Act (CBCA). 

6. Plan Your Business Expenses

With the establishment of your business account post-incorporation, you can make cheques payable to your corporation. Funds generated after incorporation can be deposited directly into your corporate bank account. 

Payments for business expenses should be made through the corporate bank account, and business expenses paid by cash should be tracked and reimbursed by the corporation. The corporation should reimburse business vehicles and home office expenses.

7. Plan Salaries, Dividends, And Income Splitting

Salaries: After incorporation, the former sole proprietor who personally operated the business becomes an employee of the corporation and should start receiving a monthly salary from the corporation for the services provided. 

Dividends: If the corporation makes a profit, the shareholders of the corporation may be paid dividends. 

Income Splitting: The corporation may pay salaries to family members including parents, spouses, or children.

Issuing dividends is a tax planning tool used by corporations.

Conclusion

Upon incorporation, your corporation becomes a legal entity, separate from you, and should own its own corporate bank account. The first directors are required to have a meeting where they organize the corporation and assign responsibilities. The corporation is required to maintain updated corporate records in a corporate minute book, file annual returns, and prepare annual resolutions. The corporation may pay dividends to its shareholders when profit is made.

This list is by no means exhaustive, but it includes some of the initial considerations following incorporation. You should also contact an accountant or tax lawyer to get advice on tax issues related to your corporation. 

Accountants at Filing Taxes can help answer all of your incorporation questions. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule your tax preparation appointment with us and take the first step towards proper management of your finances. Our professional personal tax accountants will make sure to get you the maximum tax refund on your personal tax return.

Incorporation is a form of business ownership that turns your sole proprietorship or general partnership into a company formally recognized by the Canada Revenue Agency (CRA). Through incorporation, the company's owner or owners create a separate legal entity to transact business.

Incorporating is worthwhile because business owners enjoy a veil of legal protection with this business structure. It is beneficial for self-employed taxpayers to incorporate their businesses – dividends being taxed at a lower rate than other income. Also, corporations are more likely to attract business partners and potential investors to further expand and grow the business. Forming a corporation can be costly and time-consuming for a new business but the advantages you will reap make the process worthwhile.

With a careful review of the government (federal and provincial) forms to be filed, reliable name search results, and a clear understanding of the best structure for your business, it is possible to incorporate your business yourself. Having said that, although it is not a legal requirement, it is advisable to hire an accountant, not only to do the paperwork but also to ensure that a corporation is the right business structure for your purposes.

Even if your business has only one owneryou – It’s possible to legally organize it as a corporation. One person can hold all the offices in the corporation and be the only stockholder. But just because you’re riding solo, doesn’t mean you’re exempt from following the rules. You still need to properly prepare minutes (corporate record keeping), make important decisions, and file the necessary legal documents for your incorporation.

 

Every business differs and as your company grows it is important to touch base with the right business structure. Considering your different options and choosing the right legal structure for your business can protect both your company and your personal wealth. An unincorporated business may not realize that incorporation has many long-term benefits. Unlike a partnership or sole proprietorship, the small business corporation structure shields entrepreneurs' personal assets in case debts or legal judgments are claimed against the business.

 

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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