How to incorporate in Canada
Thinking of incorporating your business? There are two ways to do it in Canada.
· Federally
· Provincially
Regardless of which way you go, the basic steps are the same. Let’s take a closer look at what those steps are.
Choose a name for your company
Your company will have to have a name. Generally speaking, that name has to consist of two different parts.
1. The name you choose (e.g. “ABC Accounting”, “Wilson & Associates”).
2. A business term called a “legal element” that describes the type of corporation (e.g. Ltd., Limited, Incorporated, Inc. etc.)
Here is an example of how the three elements work together to create a complete corporation name.
Name: ABC Accounting
Legal element: Ltd.
Result: ABC Accounting Ltd.
Your company will also be assigned a corporation number (e.g. 123456789)
You can choose to have no name, in which case the corporation number will take its place. The region of incorporation is also then required.
Example: 987654321 Manitoba Inc.
Run a name search
Before you can register a new corporation, you have to prove that no other company is already using the same name. Proof is obtained by doing what is called a name search. Each province/territory has its own name search software, and there is a separate one for companies registered federally.
You must run a full name search report, not a summary, and there is a fee of approximately $50. The report will list company names that are the same or similar to yours. For example, if you want to name your company ABC Accounting, and you run that name through a name search, you may get a list of existing companies something like this.
· ABC Accountants Inc.
· ABC Finance Accountancy Ltd.
· A Accounting Services
…etc.
If the name you want to use is on that list, you will have to come up with a new name. Even if your proposed company name is similar to one on the list, you may not be able to register it. You can try, but it may come back rejected. Then you will have to pick a new name, pay for a new name search, and re-apply.
This name search process is meant to prevent confusion among customers, trademark infringement, or legal confusion. The bottom line is that you can’t register a company name that is the same as, or highly similar to, one that already exists.
When you apply for incorporation, you must include a copy of the name search report that proves there is no name conflict.
Choose directors
The incorporation application includes a section where you must name directors. You must give their full name, phone number, and home addresses (P.O box numbers are not allowed). This is because directors have an oversight role and may be accountable for any difficulties a company may find itself in. This accountability means the government must know where to locate them, if needed. If there is a change in directors, or if any directors change their phone or address, the new information must be updated with the incorporation office.
Complete and file an application to incorporate
Applications typically ask for the following information.
· Names, phone numbers, and home addresses of each of the business’ owners
· Names, phone numbers, and home addresses of all directors
· Date company will start to be in business
· Type of goods/services to be provided
You must include a registration fee with your application. The amount varies by region. Federal incorporation currently runs about $250 if you send in your application by mail, $220 if you submit it online. Provincially, application fees typically range between $200 and $400, depending on the province.
File an annual report
Every year you must file a report, with a fee. For many smaller businesses, the report consists of a fairly simple form that is just a few pages long and has just a few questions. Typically you must identify basic information such as company name, address, phone number, as well as names and contact information for all directors. If your company has shares, you will be required to provide some information about the type of shares.
Register your business with the CRA
In addition to the process for incorporating, you must also undertake a separate process to register your business with the Canada Revenue Agency (CRA). This is the case regardless of which method of incorporation you choose (federal or provincial/territorial).
The purpose of registering with the CRA is to have an account for the remittance of payroll deductions, PST/GST collected, and business income tax. The CRA will provide you with an account number which is different from your corporation number.
Should I incorporate federally or provincially/territorially?
Whether it might be better for you to incorporate federally or provincially depends on where you live, your situation, and your preferences.
Pros and cons of federal incorporation:
Pros
· Lower price
· Can operate in all provinces/territories
· Fast online registration
· Company name protection across Canada (new companies cannot use the same or highly similar name)
Cons
· Lack of director privacy (name, phone and address are publicly available)
· Must register in each province (not incorporate, but register—that means letting the provincial government know you are a new business operating in their province. This is a separate process from incorporating.)
· Name conflict rules can be more strict than with provincial incorporation.
· There can be more ongoing paperwork than with provincial incorporation, and some of this paperwork may have a fee attached. This means your overall long-term cost may be higher than if you incorporate provincially.
Pros and cons of provincial incorporation:
Pros
· Director privacy (generally)
· Lower long-term cost (due to fewer requirements for e.g. annual report filing)
Cons
· Higher price
· If your company grows and expands to do business in other provinces, you may need to incorporate in those provinces as well.
· Application process can be more complicated than registering federally.
More information
For more information on incorporating, here are the websites for each incorporating region.
After you incorporate:
Register your company provincially
So that’s my overview of the incorporating process. Whether it makes sense for you to incorporate at all is a different topic, and one I will visit in the future.