Frequently Asked Questions
What Business Structure Should I Choose?
Starting a business can be overwhelming for first time entrepreneurs. Legal Smart can help you to understand the business structure in Canada. There are four main business structures in Canada: sole-proprietorship, partnerships, corporations and cooperatives. You can choose the business structure that best suits your requirements.
Most small businesses are sole proprietorships because this type of business is the easiest and least expensive way to start a business. As a sole proprietor, you and your business are considered as one, often called a “self-employed person.” Net business income must be included as part of your personal income and you are fully responsible for all debts and obligations related to your business.
Partnerships mostly like Sole Proprietorship structure that forms by two or more owners. Business owners own all the assets of the partnership and personally responsible for any liabilities that the partnership may incur. In most jurisdictions, there are two types of partnership: general and limited. In a general partnership, each partner is jointly liable for the debts of the partnership. In a limited partnership, a person can contribute to the business without being involved in its operations. A limited liability partnership is usually only available to a group of professionals, such as lawyers, accountants or doctors.
Corporation is a separate legal entity that distinct the business from its shareholders. Whether you are just planning or already operating a business through sole proprietorship or partnership structure, incorporation is an option worth considering. You can choose to incorporate federally or provincially, and you will not be personally liable for the debts, obligations or acts of the corporation.
Co-operative is a corporation that owned and controlled by its members. It can be set up as a for-profit or as a not-for-profit organization. Just like a corporation, it can be registered provincially or federally, and it can be appropriate in situations where a group of individuals or businesses decide to pool their resources and provide access to common needs, such as the delivery of products or services, the sale of products or services, employment, and more.
What other options I can choose to open a business?
There are few more options that you can choose to structure a business:
Ontario Master Business License
Well, a Master Business License is another form of Sole Proprietorship (non-incorporated). In the province of Ontario, a sole proprietorship is alternatively named as Master Business License. Therefore, if you fall into the category of sole proprietorship and you are in Ontario, then this is your choice. A Master Business License can be owner by an individual or a corporation. When it’s owner by a corporation, it’s called Trade Name.
A sole proprietorship or master business license is owned by an individual, while a trade name is owned by a corporation. The most common case of trade name registration is, when you have a numbered corporation and you want to add a name to it. Or you may have a named corporation, but you want to add another name as a DBA (doing business as). A Trade name also registered where you have a corporation which is doing one type of business, but you want to start another type of business in a different name under the same corporation. A corporation can take many trade names. When a money order or bank cheque comes in those alternative names, bank deposits it into the same corporation’s account.
Why Should I Incorporate my Business?
The answer to this question will depend on several variables as well as your personal goals and comfort levels.
- Limited liability
- Ownership is transferable easily
- Lower corporate tax rates
- Better access to capital and grants
- Continuous existence
- Separate legal entity
- Unlimited life
- Requires Tax filing
- Initial start-up costs
- Maintaining corporation records
Who can form a corporation?
Anyone aged 18 or older who is not an undischarged bankrupt and is of sound mind can form a corporation.
Should I incorporate my business federally or provincially?
Federal incorporation can be an excellent choice if your business needs the nation-wide business name protection or will be operating internationally. Moreover, if you are incorporating a federal corporation, you are required to register extra-provincially. If you own a business operating on a local level and have no plans of expanding across provinces, as well as no national customers or suppliers, it may make more sense to incorporate within your province.
What is the difference between named and numbered corporation?
There is no legal difference between a distinctive named and numbered corporation. A “numbered company” is a business corporation that is incorporated without choosing a unique and descriptive name. You can incorporate using a ‘number’ name, e.g. 123456 Ontario Inc. A name search, NUANS report is required for named corporation and it is valid for 90 days.
Should I Incorporate a Named Corporation or a Numbered Corporation?
Even though using a numbered corporation is helpful since it avoids the delays and expense involved in searching and reserving a corporate name, it is not suited to everyone’s needs. Particularly a numbered corporation is not informative in that it does not describe the business in any way. This is one of the major considerations that people reflect when they decide on a corporate name. Moreover, having a numbered corporation may decrease the prestige and credibility associated with your business.
What is NUANS?
The Newly Updated Automated Name Search (NUANS) is a computerized search system to check availability of a business name. It produces a list of names that are the most like your proposed name. This report must be ordered for the jurisdiction to which the corporation will be in.
Can a Federal NUANS be used to register an Ontario Corporation?
No. A Federal NUANS can only be used for Federal Corporations. Ontario Corporation requires an Ontario NUANS Report.
What are the elements of a corporate name?
A corporate name is composed of three elements:
Distinctive element which is the unique identifier of your company name.
Descriptive element which describes nature of your business (Not absolutely required).
Legal element which refers to one of the permitted legal endings. From a legal perspective there are no differences, all take you to the same place –an incorporated company.
Example: Premium Bakery Ltd.
“Premium” is the distinctive element which promotes your corporation’s brand.
“Bakery” is the descriptive element, as it describes the nature of your business.
“Ltd.” is the legal ending. The ending has no legal consequences.
Please note that you can have more than one word for the distinctive/ Descriptive element.
What must be avoided when naming my corporation?
To increase the chances of your proposed name being accepted, it is recommended that you choose a name that both accurately describes your business and is as specific and distinct as possible. If your proposed corporate name uses common or popular names, the chances of it being accepted are decreased dramatically. Furthermore, you may be prohibited from using a corporate name, which is either identical or deceptively like one that is already used by another corporation or competitor in your jurisdiction.
What happens if the name I choose is already registered?
If the name you choose is already registered, your proposed name will be rejected. In this case, Legal Smart will ask you to choose a new name.
Can I change my company’s name later?
Yes, you can change a company name at anytime after form the corporation.
Do I Need an Attorney to Incorporate?
There is no legal requirement that an attorney incorporate your business.
What are Articles of Incorporation?
Articles of Incorporation, also referred to as a certificate of incorporation, establish the legal existence of your company.
What or Who is an Incorporator of a Company?
A company is incorporate by incorporator who is the founder of the company. If the Incorporator is a Resident Canadian and an individual, he or she can be the sole officer, shareholder and/or director of the corporation. The Incorporator is responsible for start-up actions like naming the first directors and filing the Articles of Incorporation.
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.
Directors – Directors are individuals elected by a corporation’s shareholder(s) to manage the corporation. All corporations must have a minimum One (1) director, and must be at least 18 years old, an individual (physical persons), not mentally incompetent person and not be in bankrupt status. At least 25% of the directors must be Canadian permanent resident.
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, Treasurer, Secretary etc. 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 and the person can also be directors and shareholders.
What is a Professional Corporation?
A Professional Corporation is another type of Named Corporation, where the corporation is specifically formed for one of the following types of professions: medicine, optometry, dentistry, law, chiropractic, or accounting.
A Professional Corporation’s name should have the name of the practitioner, followed by the term ‘Professional Corporation’, i.e. Sam Jones Professional Corporation. Alternatively, you can add a professional descriptor (such as Legal, Law, Medical, Dental) between “Professional” and “Corporation”, i.e. Sam Jones Professional Law Corporation.
Why should I incorporate my professional practice?
Professionals can’t shield their professional liability to clients or patients by incorporating. They incorporate to take advantage of corporate tax benefits, including the small business deduction which effectively lowers corporate income tax rates on active business income.
What is an Initial Notice for a Corporation?
The Initial Notice must be filed within 60 days of the date of incorporation, continuation or amalgamation.
What is the difference between BIN & BN numbers?
A Business Identification Number (BIN) number is a business identification number issued by the Ontario Provincial Government to a Master Business Licence.
It should not be confused with the federal Business Number (BN) assigned by the Canada Revenue Agency (CRA) for federal programs, including Goods and Services Tax/Harmonized Sales Tax (GST/HST), Import/Export Accounts, Payroll Deductions and Corporate Income Tax.
Is my corporate number the same as HST number?
No. A corporate number is issued by the Provincial, Territorial or Federal Government when a corporation is registered. An HST number is issued by Revenue Canada for taxation.
When do I need a business number?
You need a business number if you incorporate or need a CRA program accounts, such as GST/HST Account, Payroll deductions or Import/Export Account.
When do I need Canada Revenue Agency Program Accounts?
Tax Account is mandatory if taxable sales are $30,000 or more in a year.
Payroll Account is required when a corporation hires a full time or part-time employee.
Import/ Export Account is mandatory if you are planning to import or export goods into or out of Canada.
What is an extra-provincial corporation?
Extra-provincial registration means obtaining a licence from the provincial Government and/or filing any other required information that is incorporated in Canada which wishes to carry on business in another province or territory other than the province or territory in which it is incorporated.
Can I use P.O box as my registered office address?
You’re not allowed to use a P.O. box as your registered or records office address. Legal Smart offers address and mail scanning & forwarding service.