The benefits of incorporating a company in Ontario are substantial compared to a sole-proprietor. At Birdi CPA, we assist clients in determining if it is the right solution for them. We will also provide the complete incorporation process all at one place for your convenience.
Determine a Company Name
A preliminary search will first be performed after obtaining two to three company names you would like for your corporation. This search determines the availability of the name in Ontario. No two companies can have the exact same name for legal and liability purposes; as a result, the name must have a distinctive element that distinguishes it from similar names. A reserved name is used throughout the incorporation process referred to as a NUANs search.
Plan a Incorporation Date
It can be strategic to incorporating a company on the right date to minimize your accounting fees. The first year end can be within 371 days rather than a standard year of 365-366 days. For example, if you incorporated on December 27, 2015 you will just need to file one tax return because your next year end of December 31, 2016 is within the 371 days limit. However, if you had incorporated on say December 12, 2015 and you preferred a December 31, 2015 year-end, you will have to file a short T2 corporate tax return ending December 31, 2015 and another one ending December 31, 2016, thus increasing your accounting fees.
Number of Directors and Residency
A corporation must have at least one director to be functional; therefore, you are allowed to select a range, a standard range for example can be minimum 1 and maximum 10 directors. The residency factor for each director is important for tax-purposes. For a corporation in Ontario to be considered a resident, at least 50% of the directors must be residents for tax-purposes. In the event there are only two directors, at least one must be a resident. Directors can be appointed and ceased any time after incorporation.
Restrictions on business activities
In the articles of incorporation, it can be specified any activities that are restricted from being carried on by the corporation. This is usually found in professional corporations for medial and other professionals whose corporation is restricted for use for their profession only by a governing body. For most small businesses, this will be none.
Classes of shares and Share Clauses
A corporation needs to detail the classes of shares that can be issued to shareholders and each class of shares needs to have attributes such as voting rights, participation upon dissolution and payment of dividends. It is crucial at this stage you consult with a tax-accountant to ensure you have the correct clauses for strategic income-splitting. At Birdi CPA, we often have to amend articles of incorporation for clients who incorporated themselves which ends up costing additional fees.
Transfer of ownership of shares
On the articles of incorporation, you want some basic rules on transferring of shares and the process required to be followed. For example, a common clause is to have written consent from majority (51%) of the directors. These details are all kept inside the company minute book.
Corporate Minute Book
As per the Business Corporations Act of Ontario, every corporation in Ontario is required to have a complete and updated minute book. A minute consist of the following legal documents at minimum:
- Articles of Incorporation
- Subscription of Shares
- Auditor Waiver
- Appointment of Accountant
- Officer Register
- Director Register
- Shareholder Register
- Share Certificates
- Shareholder agreement
The minute book must be updated annually by your tax accountant with details such as dividends and management salaries paid out etc. At Birdi CPA, upon incorporating a Company in Ontario, we provide this as part of our package.
Transferring a Business into a Corporation
See also our blog posting http://www.birdi.ca/incorporating-sole-proprietorship-business/ in case you are converting your sole-proprietorship business into a corporation.
Incorporating a company in Ontario has a lot of steps and requirements but is really worth the investment as the tax-savings can be significant. These steps will help you to work with your tax accountant to have your company setup in no time!
The information provided on this page is intended to provide general information. You should consult with a tax professional to fully determine the scope of your situation. Gurrai Birdi and Birdi Chartered Professional Accountant shall not be held liable from usage of the information provided on this page.
Author: Gurrai Birdi, CPA, CGA, MBA
Gurrai Birdi is a Chartered Professional Accountant (CPA, CGA, MBA) who has years of extensive experience in public practice working with highly satisfied individual and business clients to ensure there taxes are minimized and accounting needs are fulfilled.