Protection against liabilities. A corporation is a separate legal entity distinct from its shareholders. The owners of a corporation (known as its shareholders) are not personally liable for the debts and obligations of the corporation. Therefore, the shareholders have what is known as limited liability; they cannot be liable for more than they have put into the corporation. For example, if a creditor is owed money by the corporation they cannot generally go after the shareholders for amounts owed. A corporation as a separate legal entity also never ceases to exist unless it is dissolved; it can exist indefinitely.
Creating Tax Efficiencies. A corporation may also provide certain taxation advantages including a lower corporate tax rate (especially for small businesses) than your personal tax rate (depending on your income). You can keep the profits you earn in a corporation, which may help with tax planning, and you have control over the distribution of profits to better suite your circumstances
Named Company or a Doing Business as Name?
Generally, it is best to name your company upon incorporation; it is the most cost-effective time to do so. Sometimes people incorporate a numbered company (e.g. 12345678 Ontario Ltd.) and then think of a name for their business.
Some people prefer to have a numbered company and a “doing business as” (d.b.a.) name which is basically a license to use a name that is not your official corporate name. This license is called a “master business license” and expires 5 years from the date it is issued. This means that you need to obtain the license for $60 and every 5 years after that you have to spend about $60 to renew it. In the long run its less expensive to name your company from incorporation.
It is easier to incorporated a named company in Ontario (as opposed to a Canadian incorporation – known as a Federal incorporation); in Ontario, the burden of have a name that is not the same as another entity is on the incorporator whereas under a federal incorporation Industry Canada reviews your name and can reject it. See Federal vs. Ontario Incorporations.
Ltd., Inc. and Corp. What’s the Difference?
There is no difference in the meaning of the legal ending of a corporation; an Ontario or Federal corporation must have in its legal name any one of the following: Ltd., Limited, Corporation, Corp., Incorporated or Inc. Usually the legal identifier is at the end of the corporations name (e.g. ABC Limited), but it need not be. All of these words signify that the corporation has limited liability. You can choose a legal ending that fits best with your corporate name.
Federal vs. Ontario Incorporations
Naming the Company: Both Ontario and Federal corporations are prohibited from using names that are the same or similar to that of any known corporation, association, trade-mark, partnership or individual, whether or not currently in existence, if the use of the name would be likely to deceive the public. There are also a list of prohibited names (such as profanities, names similar to government entities, etc.). Unlike a federal incorporation, the Ontario government does not make decisions on corporate names and does not reject names for business corporations unless the proposed name is identical to that of another corporation appearing on the NUANS name search report. Industry Canada reserves the right to reject any proposed name for a federal corporation that contravenes the federal name policy. Industry Canada will review the names of corporations, associations, trade-marks, partnerships and business name registrations throughout Canada – not just in Ontario. If your federal corporate name is approved, the corporate name may be afforded greater protection across Canada and will entitle the corporation to use that name in other provinces. If there is a specific name you really want we encourage you to create an Ontario corporation or have us conduct a Federal name pre-approval.
Doing Business Nationally: Ontario or Federal incorporations are both allowed to carry on business in any province of Canada; both types will be required to comply with applicable registration or licensing requirements in the relevant provinces or territories. A federal corporation has the right to carry on business under its corporate name throughout Canada. When an Ontario corporation wishes to operate in a different province it must conduct a name search in each province or territory in which it wishes to operate in.
Privacy Concerns. Federal corporations post certain information about the company and its directors online for the public to view – see https://www.ic.gc.ca/app/scr/cc/CorporationsCanada/fdrlCrpSrch.html. This information is also available to purchase for an Ontario corporation but it is not freely available online.
Do I need an HST number?
It is always best to speak with your accountant about your business circumstance. However, if you are incorporating to operate a business (as opposed to creating a holding company that holds assets – like shares or real estate) and you anticipate to have sales over $30,000, we recommend that you obtain your HST number shortly after incorporation. Yes, you will have to commence HST filing and withholding but you will also be able to deduct HST that relates to your input tax credits (please contact your accountant or tax adviser to determine the best course of action for your business).
If you want do get your HST number check out this link to the CRA website – click here.
Do I need to be Canadian to incorporate a company?
No you don’t need to be Canadian to incorporate an Ontario or Federal company, however, you need to have at lease 25% of the directors be resident Canadians. A “resident Canadian” is generally: (a) a Canadian citizen ordinarily resident in Canada; (b) a Canadian citizen not ordinarily resident in Canada who is a member of a prescribed class of persons, or; (c) a permanent resident.
If you don’t have a resident Canadian director we can have your incorporation established in British Columbia where there are no residency requirements.
Liability in Professional Corporations.
Professional corporation shareholders should also note that the OBCA specifically removes limited liability for acts of the professional – e.g. negligence or errors and omissions claims of clients. Other limitations on liability that corporations enjoy are still available to professional corporations – such as creditor protection.