Incorporating a Business in Ontario: The Key Steps

Incorporating is a significant step for any business. Done properly, it can limit personal liability, create tax planning opportunities and make the business easier to grow, finance or sell. Done hastily, it can leave gaps in your records that cause problems years later. Here are the key steps, in order.

1. Decide whether to incorporate

A corporation is a separate legal person. In general, the corporation, rather than its owners, is responsible for its debts and obligations. Incorporation can also offer tax advantages, particularly when profits are reinvested in the business.

There are trade-offs. A corporation has setup costs, must keep formal records, files its own tax returns and has annual filing obligations. Personal guarantees given to banks or landlords can also reduce the benefit of limited liability.

2. Choose federal or Ontario incorporation

You can incorporate federally under the Canada Business Corporations Act or provincially under Ontario's Business Corporations Act. A federal corporation has name protection across Canada but must also register in each province where it carries on business. An Ontario corporation is often simpler and less costly for businesses operating mainly in Ontario.

3. Choose a name or a number

You can incorporate with a name, such as "Maple Ridge Consulting Inc.", or as a numbered company, such as "1234567 Ontario Inc." A numbered company is faster to set up and can later operate under a registered business name.

If you want a named corporation, a NUANS name search report is generally required to check for similar existing names. The name must include a legal ending such as Limited, Incorporated or Corporation (or the abbreviations Ltd., Inc. or Corp.) and must not be confusingly similar to an existing business name or trademark.

4. Prepare and file the articles of incorporation

The articles of incorporation set out the corporation's basic structure, including:

• The corporation's name and registered office address
• The number of directors (a fixed number or a minimum and maximum)
• The first directors
• The classes of shares and any rights and restrictions attached to them
• Any restrictions on share transfers or on the business the corporation may carry on

In Ontario, articles are filed online through the Ontario Business Registry. Once accepted, the corporation exists from the date shown on the certificate of incorporation.

5. Organize the corporation

Filing articles creates the corporation, but the work is not finished. The corporation must then be organized, which typically includes:

1. General by-laws governing meetings, officers, banking and signing authority
2. Organizational resolutions of the directors and shareholders
3. Issuing shares to the owners and receiving payment for them
4. Appointing officers, such as a president and secretary
5. Setting up registers of directors, officers, shareholders and securities

Ontario corporations must also keep a register of individuals with significant control, which records the people who ultimately own or control a significant portion of the corporation.

These documents form the corporation's minute book. A complete minute book matters when you open a bank account, apply for financing, sell the business or respond to a tax review.

6. Register with the Canada Revenue Agency

Your corporation will need a business number and program accounts with the Canada Revenue Agency, such as corporate income tax and, if required, payroll and GST/HST accounts.

Most businesses must register for GST/HST once their taxable revenue exceeds $30,000 over four consecutive calendar quarters. Your accountant can advise on registration timing.

7. Put a shareholder agreement in place

If the corporation has more than one shareholder, a shareholder agreement is strongly recommended. It can address:

• How major decisions are made and what requires unanimous approval
• What happens if a shareholder wants to leave, becomes disabled or passes away
• How shares are valued and whether other shareholders have a right to buy them first
• How disputes and deadlocks are resolved

Agreements are far easier to negotiate at the beginning, when everyone's interests are aligned.

8. Keep up with ongoing obligations

Ontario corporations must file an initial return shortly after incorporating and an annual return each year, and must report changes such as new directors or a new registered office address. Each year, the directors and shareholders should also approve the financial statements and pass annual resolutions to keep the minute book current.

Depending on your business, you may also need municipal licences, permits or industry-specific registrations.

Getting it right from the start

Incorporation is more than filing a form. Taking time to choose the right structure, organize the corporation properly and document the owners' relationship pays off for the life of the business. Learn more about our corporate and business services.