When starting a business in Canada, one of the main things to consider is your business structure. Your organizational structure will affect how you develop and implement your business strategy, build company culture, and even attract and retain top talent.
You can either register the business as a sole proprietorship or a corporation depending on your circumstances and preferences. With the former, your personal and business finances are tied. For one, you’ll need to report your business earnings as part of your personal income. Also, keep in mind that all profits and losses that the business incurs have a direct impact on your personal finances.
Of course, a sole proprietorship also has benefits, but a corporation gives you more flexibility. Therefore, you may consider forming a corporation once your business starts growing. It’s also a good way of protecting your personal income and assets from legal issues.
Fortunately, incorporating a business in Ontario is fast and easy when you have the necessary knowledge and resources. If you plan to take that route, you’re in the right place. This article will cover things you need to know about business incorporation in Ontario.
What Is Incorporation?
Incorporation refers to the process of separating your business from your personal finances and forming a legally separate entity. With incorporation, your personal income and assets will no longer be linked to your business. So, unlike a sole proprietorship, you won’t risk losing your assets when something goes wrong.
It’s also worth noting that this process allows you to sell shares. If you no longer want to own and manage the business alone, you can incorporate it and invite prospective investors. Keep in mind, though, that the Government of Canada will need you to provide an ‘article of incorporation. These documents help ensure that your business setup is compliant with the law. They also describe your company’s share structure.
You can form a corporation pretty much anywhere around the world. However, the requirements and procedures may vary depending on your country of residence. The following section discusses the process of Ontario incorporation and its benefits. Continue reading to learn more.
How To Incorporate In Ontario
As mentioned earlier, this process is simple when you understand and have all the requirements ready. The main things you’ll need are the company name and articles of incorporation. That said, here are the steps to follow:
1. Choose Your Company Name
The name you choose has a lot of significance for your business, branding, and company culture. As such, it must reflect your mission, beliefs, and what your business is all about. For sole proprietorships, it’s okay and quite common to use one’s name as their trade name. But as for corporations, you’ll need to use a custom name.
Consider these tips when choosing your business name:
- It should reflect your product and/or services and must not be misleading to the public in that regard.
- Make it relatable but also unique to avoid confusing your prospective customers. To check existing corporate names, you can search the internet, the national database (NUANS), and Ontario’s business registry.
- Follow your state’s business naming guidelines. For instance, in Ontario, the name must not contain prohibited terms like ‘Parliament Hill,’ ‘United Nations,’ or ‘Royal Canadian Mounted Police’ (RCMP). Ensure to go through all the terms and phrases prohibited before selecting a business name.
- The name must not suggest institutional or governmental sponsorship unless there is written consent by the concerned party.
Keep in mind that the tips provided above are the requirements of corporate naming in Ontario. All business cooperatives, not-for-profit, and for-profit corporations must comply with these requirements. Therefore, you must follow all of them in your business naming process.
2. Write The Articles Of Incorporation
After choosing your business name, the next step is creating the articles of incorporation. These are the legal documents submitted to the Federal or Provincial government as part of establishing your enterprise as a legal entity. So, what information should these documents contain? The exact data needed may vary from business to business, but here is their general content:
- Business name: It should meet the requirements discussed earlier in the article.
- Your company’s full address: Indicate the exact location of your business’s registered office in Ontario. Don’t use your PO box address here.
- Directors’ personal details: You’ll be required to provide the names and addresses of the company’s directors. It should include everyone directly connected to the business.
- Citizenship status: According to Ontario’s federal law, at least a quarter of your company’s directors should be native Canadians.
- Share structure: How many shares will each co-owner have? If you’re planning to have multiple share classes, ensure you also include the different privileges enjoyed by each shareholder. For instance, some would be allowed to vote during board elections or vital decision-making sessions, while others won’t be.
All information filled out in these documents will be legally binding. As such, it’d be prudent to hire a lawyer to help you with the process and obtain advice where needed.
3. Register Your Company
You can proceed with the registration phase once you have all the information and documents listed above. Among the most important things you’ll need to provide are the company’s registered office address and a list of its board of directors.
You may be allowed to use your home address if you don’t have a certified office address yet. But it’d still be a good idea to inquire beforehand to know if your business meets all the requirements. The whole incorporation process is straightforward and should take a few hours to complete.
When you want to start a small business, you’ll need to register it as a sole proprietorship or corporation. With the latter, your personal income and assets are separated from the company’s finances. As such, you’ll be shielded from any liabilities incurred by the business. The incorporation process in Ontario isn’t complicated, provided you have all the requirements.
First, you’ll need to form and register a business name that adheres to the naming regulations. It shouldn’t contain prohibited terms, must be unique, and shouldn’t suggest any governmental sponsorship. Another requirement is articles of incorporation which can be filled out with the help of a lawyer. These documents contain the company’s share structure and the personal information of the directors. Once you have everything set, you can then complete the last registration phase as described in the article.