Incorporating a Business? Six Things to Consider.
Are you presently running a business as a sole proprietor or as a partnership with other partners? Are you in the process of launching a business?
Incorporating a company may be the right option for you given your situation.
If you decide to go ahead and incorporate a company in Ontario, here are six things you need to consider when incorporating and organizing your corporation:
- Numbered Name or Word Name
If you choose to have a numbered name for your company, a numbered name will be assigned to your corporation (e.g., 1234567 Ontario Inc.) when you submit your Articles of Incorporation. On the other hand, if you wish to have a word name for your corporation (e.g., ABC Trading Ltd.), you will need to submit a NUANS name search report with your Articles of Incorporation and such name will need to be approved by the Ministry of Government and Consumer Services. The word name you select will need to comply with the corporate name rules under the Business Corporations Act (Ontario) (“OBCA”).
Under Ontario corporate law, directors are responsible for managing and supervising the management of the business and affairs of a corporation. Careful consideration should be given to the identification and selection of the directors of a corporation since the board of directors exercises significant decision-making powers within the corporation. At least 25 per cent of the directors of a corporation must be resident Canadians. A non-offering corporation (i.e., a corporation that is not offering its securities to the public) must have at least one director.
Will the corporation have designated offices and, if so, which individuals will be appointed as officers? The OBCA does not require a corporation to have any designated offices or to appoint officers. However, if a corporation has designated offices and will be appointing officers, the OBCA permits a director to also be an officer of the corporation and allows two or more offices to be held by the same person.
You will need to determine the class or classes of shares that the corporation will be authorized to issue (e.g., common shares, preferred shares, special shares, etc.) and the rights, privileges, conditions and restrictions attached to each class of shares. This determination will largely depend on the nature of your business and your plans for the business. For example, if your business is a one-person show and intends to stay that way, you will only need to issue common shares. Conversely, if you anticipate that the company will be raising money from outside investors at some point in the future, you may want the corporation to have the flexibility to issue more than one class of shares.
Who will be the initial shareholders of the corporation, and how many and what classes of shares will initially be issued to each shareholder? Will some shareholders have priority over other shareholders with respect to the receipt of dividends? Will some shareholders not have the right to vote at shareholder meetings? These are some questions which will need to be addressed by the proposed shareholders prior to the issuance of shares by the corporation.
- Professional Corporation
If you are a regulated professional (CPA, lawyer, regulated health professional, social worker or veterinarian) and will be incorporating your practice, you will need to ensure that the Articles of Incorporation comply with any by-laws and regulations set forth by your professional governing body. Typically, these by-laws and regulations require that the Articles of Incorporation (1) restrict the business activities of the corporation to the practice of your profession and (2) impose specific transfer and ownership restrictions on the shares of the corporation.
This article is for informational purposes only and does not constitute legal advice.
 If you would like to determine whether incorporating your business would be beneficial under your circumstances, you should speak with a business lawyer and/or an accountant.