In Canada, business operators have three choices when it comes to business ownership structures: sole proprietorship, partnership, or incorporation. Incorporation is a popular decision among Canadian business owners due to it’s notable and extensive advantages. To learn more about what a corporation is and how to incorporate your business, read below.
What Does it Mean to Incorporate Your Business?
Incorporation is a type of business ownership that involves creating a separate entity. In other words, a corporation is considered to be its own “person” in the eyes of the law and government. Unlike sole proprietorships and partnerships, a corporation is completely distinct from its owners, otherwise known as shareholders.
A corporation can be public or private. A public corporation would be traded on a stock exchange, such as the Toronto Stock Exchange (TSE). A private corporation would be any other business that is not traded on a public stock exchange.
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How to Incorporate in Canada
Incorporating a business in Canada is a fairly simple process, you’ll likely find that the most painful part is the fees! Below are the steps to incorporating a business in Canada.
Pick a Business Name
This step is optional but convenient for people who are already operating a business and looking to incorporate. If you have a business name in mind, you need to search to see if the name is available first. Hopefully it is available to reserve through a NUANS report, otherwise, you may need to choose a different name.
If you don’t have a business name in mind yet, don’t fret. You can incorporate your business using a number issued by the government instead of picking a name. If you want to assign a trade name to your business in the future, you can always do so later.
Obtain a Business Number (BN) or Quebec Enterprise Number (NEQ)
A business number identifies your business to federal and provincial governments for as long as your business exists, which could be forever. If you incorporate in Quebec, you obtain a NEQ instead of a BN.
Federal or Provincial Incorporation
In Canada, you have the choice to incorporate federally or provincially. Federal incorporation allows you to operate your business under the same name in all provinces and territories. Although, federal incorporation comes with a price and is slightly more work to set up and maintain. Incorporating provincially only allows you to operate within your province or territory. The decision you make depends a lot on the scope of the work you do and what your long term plans are.
Register for GST/HST
If you earn $30,000 or more in combined revenue per year, you must register for a GST/HST account with the government. Even if you don’t meet this requirement, you can still register for a GST/HST account with the government. Some corporation owners choose to register because you get the sales tax you pay refunded by the government. Keep in mind that if you collect sales tax from your customers, you will need to pay that back to the government. If you operate your corporation in Quebec, you will need to register with Revenue Quebec.
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The Pros and Cons of Incorporation
Sole proprietorships, partnerships, and corporations are the three main types of business ownership. They all have corresponding advantages and disadvantages, let’s explore the pros and cons of incorporation.
Advantages
- Credibility. Many businesses and institutions won’t enter into contracts or agreements with unincorporated businesses. More credibility is associated with an incorporated business.
- Tax Benefits. The Canadian taxation system has a lot of benefits geared toward corporations, such as the small business deduction and certain deferred tax payments.
- Infinite Lifespan. A corporation lives forever, even after its owners pass.
- Easier to Raise Money and Grow. It is easier to sell shares and equity to raise money and stimulate business growth.
- Transferable Ownership. Ownership of a business can be transferred easily by selling the business or planning succession.
- Income Splitting. It is possible to income split using corporations. This means you will pay less tax as a group or family because you have complete control over who gets dividends.
- Separate Personal and Business Obligations. All of your personal affairs are handled by you and all of your business affairs are handled within the corporation through business incorporation. This means you’re not personally liable for debts or activity of the corporation. Separation of personal and business obligations is beneficial because your personal finances and assets are protected (click here to learn about using a personal credit card for business expenses). Even the best of business owners will experience financial hardship within their company, incorporating a business can protect you from a serious blow.
Disadvantages
- Expensive. Here, the term expensive refers to intensive use of money and time. It costs more money to incorporate a business and maintain it over time. In addition, all of the paperwork required with owning a corporation can be challenging and time-consuming to stay on top of, particularly for small companies.
- No Personal Tax Credits. You cannot claim personal tax credits on a corporate tax return, only your personal tax return. This could mean you will pay more tax by incorporating.
- Closing a Corporation. At some point, you may want to eliminate your corporation. This process can be complicated and administratively challenging.
What are Articles of Incorporation?
The rules and regulations that dictate the conduct of a company’s members and directors are known as the articles of incorporation. Potential information in the articles of incorporation includes: full legal corporation name, registered corporate address, number of directors, names and addresses of founding directors, restrictions to business activities, classes of shares, the maximum number of issuable shares, conditions of share ownership, and director authority.
It may seem stressful to determine this much information when incorporating a business initially. Fortunately, you can change, update or remove information from the articles of incorporation by completing a Form 4 – Articles of Amendment with Corporations Canada.
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How Much Does it Cost to Incorporate a Business
Below are the costs to incorporate federally and provincially. Each province and territory has its own unique process for incorporating. To learn more about the specifics, or for information regarding provinces and territories not listed below, visit your province or territories incorporation website. Finally, additional fees are required to search and reserve your desired business name, the fee is for a NUANS report. Other fees may be applicable during the incorporation process as well, be sure to budget accordingly.
Federal Incorporation
Cost to Incorporate Online: $200
Cost to Incorporate by Mail, Fax or In Person: $250
NUANS Report: $75
Ontario Incorporation
Cost to Incorporate Online: $300
Cost to Incorporate by Mail or In Person: $360
NUANS Report: $75
Alberta Incorporation
Cost to Incorporate Online, Mail or In Person: $450
NUANS Report: $30
British Columbia Incorporation
Cost to Incorporate Online, Mail or In Person: $350
NUANS Report: $30
Quebec Incorporation
Cost to Incorporate Online, Mail or In Person: $326
Name Reservation: $22
Nova Scotia Incorporation
Cost to Incorporate Online, Mail or In Person: $336.40, plus a $118.35 registration fee
NUANS Report: $69
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Ready to Incorporate?
If you’re ready to incorporate, visit the federal or your provincial or territorial incorporation website today and complete the necessary documentation. Filing online is usually the easiest way to incorporate, but visiting a government branch could help you if you’re unsure of how to complete the application or are interested in more information or guidance.
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