To plan for the creation and future maintenance and operation of your corporation, there are some important issues to consider, such as: (a) the impacts of pre-existing contracts on your new corporation, (b) using and registering trade names, (c) transferring your personal assets to your corporation, (d) having a secondary will, (e) entering into a shareholder agreement, and (f) how to change a corporation.
Contracts with Third Parties
Before you incorporate, have your business lawyer review your existing contracts, such as commercial leases and supply agreements, for provisions that require you to notify the other party of changes to your business (such as an incorporation), or to obtain consent before assigning the contract to your corporation. The terms of your existing contracts may impact your decision to incorporate or the process through which you do so.
If you would like to operate or advertise your business under a name that is different from the name of your corporation, you must first register that name (i.e. “McDonald’s” instead of “McDonald’s Corporation”). Your business lawyer can assist you with running a search to determine whether your chosen trade name is already registered to another business and can prepare the necessary resolutions and complete your registration.
Transferring personal assets to a corporation
A sole proprietor may transfer (“roll over”) her tangible and intangible assets, such as inventory, equipment, vehicles, real estate, and goodwill (i.e. intangible value developed by things like brands and customer lists) to her new corporation on a tax deferred basis. A corporate accountant can assist you with valuing your assets and planning your rollover, and your business lawyer can prepare the documentation to effectuate the transfer, based on your accountant’s instructions.
A secondary will is a tool that can reduce the amount of tax your estate will be required to pay after your death. Your corporate accountant can determine whether you own assets that may be subject to significant estate administration tax if dealt with in your primary will, and an estates lawyer can assist you with addressing those assets in a secondary will.
A shareholder agreement can prevent or minimize disputes between shareholders by setting out how certain matters will be handled if they arise. A shareholder agreement can also benefit minority shareholders (those who own fewer voting shares and have less control over the business) by setting out certain decisions that require the consent of all shareholders. Your business lawyer can assist you with preparing and negotiating a shareholder agreement.
Changing a corporation
If a corporation changes its registered office address, address for service, language preference, and/or director or officer information, the directors must sign a resolution authorizing the change, and the corporation must file a notice of change within 15 days of the change taking place. Ontario corporations must file a notice of change with the Ministry of Government and Consumer Services through the Ontario Business Registry, and federal corporations must file with Corporations Canada through the government of Canada website. There is no fee to file a notice of change.
To make changes to a corporation’s articles of incorporation, such as to the corporation’s name, authorized share classes, characteristics of share classes, restrictions on transferring shares, the range or fixed number of directors, or, for a federal corporation, the province/territory where its registered office is located, the shareholders must sign a special resolution authorizing the change, and the corporation must file articles of amendment. There is a fee to file articles of amendment.
Conclusion and next steps
Now that we have examined many of the important considerations that impact a business owner’s (or potential business owner’s) decision to incorporate, Part 4 of this blog series will discuss how to incorporate and the events or circumstances that may signal when it is a good time to do so.