Whether you’re an established entrepreneur or a new sole proprietor, if you’re contemplating incorporating your business, you likely have questions… lots of questions. That’s great! Inquiring and doing your research is the first step to incorporating––and that’s what we’re here to help you with.
Many new entrepreneurs come to us with a multitude of questions about incorporating, so we’ve endeavored to give you as much information as we can to help set you on the path to success.
What does it mean to incorporate my business?
What are the pros and cons of incorporating?
How do I incorporate my business?
Some frequently asked questions
Incorporating your business means legally separating yourself from your company. This influences business spheres like taxes, liability, and salary.
To incorporate your business, you first need to decide if you want to incorporate federally or provincially. This will impact where you can operate your business and even how far name protection extends (will it be just in the province you’re operating or will it be across Canada?).
The process of incorporating includes filing an articles of incorporation, along with paying the appropriate fees and submitting a NUANS search report. If this sounds overwhelming, don’t worry. There’s help for that, too.
You may be asking yourself, “why should I incorporate my business?” That’s a reasonable question, after all, incorporating can feel like a big step for your business. That’s why it’s important to draw up a pros and cons list.
Lucky for you, we’ve done exactly that.
This is the main reason why entrepreneurs choose to incorporate their businesses. When you incorporate your business, it becomes its own legal entity. That means assets that don’t belong to the business (such as your personal savings, your home, car, and any other assets in your name) are protected from potential lawsuits or debt collections.
However, there are always some exceptions where directors can be held personally liable. These are:
Any unpaid employee wages and vacation pay, up to six and 12 months, respectively.
Because a corporation is an entity separate from its directors (you), your company can remain in existence in perpetuity regardless of what happens to you or your business partners.
For example, in some business structures, such as sole proprietorship, the business will dissolve if the owner leaves. However, with a corporation, shareholders can usually transfer their interest if they decide to pull out of the business. This also makes corporations a lot easier to sell than sole proprietorships.
This is probably the second most common reason why sole proprietors choose to incorporate: the tax advantages it offers.
Let’s work with an example: You own your business as a sole proprietor and, therefore, you pay personal income tax on all your business’s earnings, regardless of how much you actually take home as a salary or reinvest back into it. But at some point, the income your business makes puts your personal income into a much higher tax bracket, and you find yourself paying the government a lot more than is really necessary. In this situation, it’s beneficial to incorporate your business in order to pay less personal income tax while still drawing a salary (which you will pay personal income tax on).
The major tax benefit comes courtesy of corporate tax rates being considerably lower than personal income tax rates.
Getting a business off the ground or expanding your business is tough work and sometimes requires a lot of funds. This might be money you just don’t have laying around in your personal savings. That’s where funding can help
Corporations are far more likely to be awarded business grants, be given loans and credit lines, and secure investors than sole proprietorships are. In fact, you’ll be hard-pressed to find an investor who will invest in a business that can’t sell them shares.
Speaking of credit: professional credibility goes a long way in the business world, and a company that has “Ltd.” or “Inc.” tacked onto the end of its name is far more likely to be seen as credible. This helps establish you as a professional force, and you’ll be more likely to earn respect from future clients, as well as suppliers and other businesses you’ll work with.
Incorporating a business is by far more complicated than registering as a sole proprietorship. It requires a lot more paperwork and, if you decide to incorporate federally, that paperwork is even more detailed.
Keeping your incorporation status also requires annual updates. Keeping a minute book, which is a collection of documents that basically set out the entire framework of your company, is also legally required.
It also works the other way around if you lose money in your business. If, for example, you are incorporated and you lose money in your first year of business you cannot claim those loses (you have to carry those loses forward until you make a profit in subsequent years). As a sole proprietorship you are allowed to claim business loses against any other income you make from the start.
This is a scary thing for many business owners considering incorporation. As the owner, you no longer have entire control over what happens in your business as you may have other directors, shareholders, and investors. So think critically about whether this is something you can manage.
Incorporating your business is a detailed process that needs to be done correctly. Some business owners choose to hire a lawyer, but the fees can be prohibitive. That said, doing it yourself isn’t always recommended as it can take a lot of time and, if not done properly, can be costly down the road.
That’s why Ownr is here to help. Ownr can incorporate your business for a fraction of the cost than if you’d hired a lawyer. Plus, you get top-tier customer service, as well as an online dashboard so you can keep track of all of your documents and Minute Book.
If you do choose to do it yourself, incorporating your business takes a few steps:
Step 1: Decide where to incorporate
In Canada, you have the option to incorporate federally or provincially. As mentioned above, the main difference is where you’re permitted to conduct your business. Incorporating provincially means you’ll only be able to operate within that province, while incorporating federally allows your corporation to operate across Canada.
Keep in mind that if you choose to incorporate your business federally, you’ll still need to file your articles of incorporation in your province of operation as well.
Step 2: Choose a business name
This can be a really fun process, but unlike registering a sole proprietorship, you do need to have a NUANS report filed alongside your articles of incorporation.
A business name is typically threefold:
A distinctive element + a descriptive element + a legal identifier
Rosie’s [distinctive element] + Roses [descriptive] + Inc. [legal identifier]
Step 3: Prepare your documents
You’ll need to prepare your articles of incorporation, which is the blueprint for your business, and outlines your mission, location, business activities and restrictions, the number of directors and shareholders, share structure, and restrictions or share transfers.
Step 4: Submit your application
Ensure you have all your documents in order before submitting your application online or by regular mail. Check with your regional requirements as provinces can vary. These documents will include your NUANS name search report, registered office address, board of directors list, and filing fee. You’ll then receive your certificate of incorporation.
Step 5: Complete additional tasks
The process isn’t quite finished after receiving your certificate. There are a number of duties you are legally required to fulfill in order to maintain your incorporation status, such as drafting your corporate bylaws, issuing share certificates, creating a minute book, and registering your business provincially.
Incorporating your business can be an overwhelming undertaking. That’s why it’s important to seek help where you need it. Ask questions and even inquire within your own business community, even if just to reassure you and relieve some anxiety. However, the easiest way to incorporate and be sure you’re doing so correctly is to use our services at Ownr.
Articles of incorporation are your legal documents submitted to the provincial, territorial, or federal governments in Canada. They’re used to establish your business as a legal entity and help set out your corporation’s purpose and regulations.
For a full rundown on articles of incorporation, check out this guide.
A minute book is a collection of essential documents that you need to maintain as part of your incorporation status. This includes:
Articles of amendment
This depends on your business goals. If you’re looking to conduct business across Canada, or need business name protection federally rather than just provincially, you may want to consider federal incorporation. If not, provincial incorporation is a simpler process.
Here’s a handy guide to help you through this decision.
Not at all! In fact, there are many sole proprietors who choose to incorporate long after they’ve been in business. It’s really an individual thing and something that you should do only when it’s right for you.
The cost of incorporation depends on where you incorporate, if you incorporate federally or provincially, and if you do it yourself, hire a lawyer, or use help like Ownr. For filing fees, it’s best to check with your region.
Choosing to incorporate your business is a big decision and one you might need some help with. When you do decide to register, Ownr can help you for a fraction of the cost of hiring a lawyer, and do so accurately and quickly. Plus, you’ll get all kinds of perks like a free NUANS report, minute book updates, 24/7 online access to all your documents, one-on-one onboarding, and ongoing support to set you up for success.