Starting a business is easy as 1-2-3!
1. Choose Type of Registration
2. Choose Where to Register
3. Choose Business Name
1. Choose Type of Registration
When starting a business, one of the first decisions you need to make is to choose the type of legal registration. This will have an impact on:
- the personal liability you will have from the debts of the business
- your ability to raise investment capital for your new business
- the level of taxes you will potentially pay
- the amount of paperwork and compliance your business will be required to do going forward
- level of control in managing and making decisions for your business
In Canada, there are three main ways to structure your business:
A sole proprietorship is owned by one individual and the business does not exist apart from the owner. It’s easy and quick to form, gives you complete business-making decision control, allows you to earn all the profits but you are also personally liable for all debts and obligations related to the business.
For more information on sole proprietorships, click here.
A partnership is created when two or more people agree to share in the profit and losses of a business. It’s like a sole proprietorship but with 2 or more owners. A primary advantage is that the partnership is that profits or losses are “passed through” to partners to report on their individual income tax returns. A primary disadvantage is liability-each partner is personally liable for the financial obligations of the business.
For more information on Partnerships, click here.
A corporation is a legal structure that is formed to operate a for-profit business that has a legal personality which is distinct from its owners (called shareholders) and the individuals who manage and run its affairs and business (called directors and officers). The creation of a corporation occurs following the proper filing of Articles of Incorporation with the government.
The principal advantages of a corporation are that it can exist for an indefinite period, beyond the lifetime of any one member or founder, and it also offers its owners the protection of limited personal liability. It also offers the most ownership flexibility which makes its easier to raise capital from investors. Some of its drawbacks include the higher costs of starting and operating a corporation due more compliance requirements (i.e. more government filings and paperwork).
Overall corporations are the preferred legal structure for businesses.
For more information on Corporations, click here.
Non-profits are associations and organizations that are formed by individuals in order to pursue a common goal, and are often dedicated to advocating for a specific group or furthering a specific social cause operating for the benefit of others. In other words, its objective is not to make money for its owners or members. A non-profit organization uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization’s members as profit.
It’s important to note that a non-profit organization needs to apply with the Canada Revenue Agency to qualify as a charity to be able to issue tax deductible receipts.
For more information on Non-profits, click here.
2. Choose Where to Register
Once you have decided on what kind of registration you need to choose where you are going to register your business.
If you’ve decided on a sole proprietorship or partnership, you simply register in the province you are located in.
If you have decided on a corporation, you need to choose between a provincial or federal corporation. There are advantages and disadvantages to both and there is no one best solution. Deciding which jurisdiction to choose may depend on the answers provided to these questions:
- Do you plan on doing business in more than one province?
- What percentage of the corporation’s directors will be residents of Canada, if any?
- Do I want to have 2 annual corporate reports (one for federal and one for provincial)?
- Do I want to save money now for incorporation, even though it may cost me more in the long run?
Below are the most common factors that are used to decide where to incorporate:
If you intend on carrying on business only in one province, you may choose to incorporate a provincial corporation under the laws of that province or a federal corporation.
A federal corporation is generally entitled to carry on business anywhere in Canada under its name, subject only to registering in the province where business is carried on. There generally are provincial registration fees (except in Ontario and P.E.I.) that must be added to the incorporation fees of a federal corporation (will be detailed below).
Costs of Incorporation
One of the most important factors for small businesses when deciding to incorporate is the cost of incorporation. The jurisdiction of incorporation will automatically become criteria for decision because government fees are not the same.
Below are the current government incorporation fees Canadian jurisdictions:
|Prince Edward Island||$265|
Moreover, if you are incorporating a federal corporation, you must also register extra-provincially. Currently, the provincial fees for a federal corporation which has its registered office in that province are (these are in addition to the federal incorporation fee of $200 indicated above):
|Province||Extra-provincial Registration Fee|
|British Columbia||$391 (including name search $39)|
|Manitoba||$349 (including name search $49)|
|Prince Edward Island||$260|
|Saskatchewan||$340 (including name search $75)|
As you can see, in most cases, it is more expensive to incorporate a federal corporation. The one exception is Ontario where there is no provincial registration fee.
IN FACT, IT IS LESS EXPENSIVE TO INCORPORATE A FEDERAL CORPORATION THAN AN ONTARIO CORPORATION IN ONTARIO.
Moreover, there are annual filings. With a federal corporation, there would be 2 annual corporate report filings ($20-40 per year). For provincial corporations there would only be 1 annual report.
Timelines for Incorporations
Another important factor when deciding to incorporate is the time it takes. Some jurisdictions are significantly faster than others. Below are the standard processing delays (in business days) that it takes to obtain a certificate of incorporation following the submission of articles of incorporation. Please note additional delays may be due to name approvals.
(Additional fees apply)
|Federal||5 days||3 days|
|Alberta||5 days||3 days|
|British Columbia||10 days||7 days|
|Manitoba||15 days||6 days|
|New Brunswick||15 days||N/A|
|Nova Scotia||21 days||N/A|
|Ontario||5 days||2 days|
|Prince Edward Island||15 days||N/A|
|Quebec *||10 days||5 days|
|Saskatchewan **||30 days||15 days|
* Please be advised that the trade name will be filed at the time of incorporation, however, there is a government processing time of approximately 14 business days before the trade name is officially approved.
** Please be advised that the current government delay to obtain a name decision for Saskatchewan is approximately 15 business days. This delay is in addition to the processing times for incorporations and business name registrations.
Protection of Corporate Name and Its Use
The federal corporation has probably the most stringent criteria in granting the right to use a name as the corporation’s legal name. There are many factors that are taken into account by federal corporation examiners. Once the name is approved, it provides a significant amount of legal protection, although less than trademarks.
Most provinces offer very little protection of use, and will grant almost any name provided it is not identical. Moreover, if there is any protection, it is limited to that province, unlike federal corporations which afford Canada wide protection.
For example, a federal corporation with its registered office is Ontario is entitled to carry on business must file certain corporate information with the Ontario government. If the corporation uses a name other than its corporate name, this must be registered as well, under the Business Names Act. The Ontario government charges $60 for a five year registration.
Directors Residency Requirements
Another factor that can be important in deciding where to incorporate is the Canadian residency requirements of each jurisdiction. This is especially relevant to foreigners starting a business in Canada. If these requirements are not satisfied, you cannot incorporate in that jurisdiction.
Below are the current residency requirements for each Canadian jurisdiction:
|Federal||at least 25% must be resident Canadians|
|Alberta||at least 50% must be resident Canadians|
|Manitoba||at least 51% must be resident Canadians|
|Newfoundland||at least 51% must be resident Canadians|
|Ontario||at least 25% must be resident Canadians; However, if there are less than 4 directors, then 1 must be a resident Canadian|
|Prince Edward Island||None|
|Saskatchewan||at least 51% must be resident Canadians; at least one director must be ordinarily resident of Saskatchewan|
Furthermore, there are other issues that you may consider in selecting where you incorporate your business, namely, determining the advantages and disadvantages of each jurisdiction’s corporate laws and tax structure. If you require additional information to make an informed decision as to where to incorporate your business we suggest you contact competent legal and tax professionals and discuss these matters with them.
3. Choose Your Business Name
The last important decision to make when starting your business is choosing your business name. This name will become the business’ identity around which you will market your business products or services.
Many people already have a business name in mind when they decide to start a business. However, it’s important that the name is not already being used by another business to avoid confusion with existing businesses. Accordingly, government registries require that the proposed name is searched on the relevant government databases prior to filing a business registration or articles of incorporation application to ensure that the name you want to protect for your business is in fact available for you to use, and that the name is not deceptively similar to a name that is already registered. To ensure name availability, this requires searching the proposed name and other similar variations.
Once you have selected the legal structure and jurisdiction of your business it’s relatively easy to proceed with the searching for the name availability of your business. Name search reports can be done together with your business registration or incorporation order, or can be done beforehand.
Legal Business Structure Comparison Chart
Still not sure which legal structure is best for you? Refer to our side-by-side comparison chart here.
Starting a business?
Starting a new business doesn’t have to be complicated.
Our FAQs can answer some of the most common questions about incorporations and business registrations.
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