Once you have gathered the necessary information, and if you have decided to incorporate, the next step is to meet with a business lawyer who will start-up and help maintain your corporation with the best interests of your business in mind. To streamline and tailor your experience with your lawyer, it is helpful to prepare and compile the information that your lawyer will need to know. Before your first meeting, consider your answers to the following questions:
Will your corporation run a not-for-profit or for-profit business?
Not-for-profit corporations are incorporated under and governed by their own legislation. They are subject to unique rules surrounding business activities and governance practices. Inform your lawyer if you will be operating a not-for-profit business so he/she can prepare your documentation in accordance with the applicable laws and regulations.
Will your corporation run a professional business?
A professional corporation offers professional services, such as medical, veterinary, legal, or accounting services, and is regulated by a governing professional body, such as the College of Physicians and Surgeons of Ontario. The name of a professional corporation must contain the words “Professional Corporation” (and cannot be a number name), and the corporation’s records and business activities must comply with the regulations of its governing body.
Will you incorporate provincially or federally?
Incorporating provincially allows a business to operate in one province, with the option to expand into other provinces. It also offers protection of the corporation’s name within the same province(s) or territory(s). If you operate a small, local business and do not plan on operating across Canada or having national or international customers, provincial incorporation might be suitable.
On the other hand, incorporating federally allows you to operate anywhere in Canada and offers national name protection. If you plan on operating across Canada or internationally, federal incorporation may be more appropriate.
What will you name your corporation?
Provide your lawyer with your first and second name choice or elect to be assigned a number name. If you choose a non-number name, it must contain: (a) a distinctive element (a term that sets the name apart from others, such as a surname or location); (b) a descriptive element (a term that describes what the business does, such as landscaping, dry cleaning, or holding investments); and (c) a legal ending (an element that signals that the business is a corporation, such as “Corporation”/“Corp.”, “Limited”/“Ltd.”, or “Incorporated”/“Inc.”).
Who is your corporate accountant and what are his/her instructions?
Select a corporate accountant and consult with her to determine: (a) the classes of shares your corporation will be authorized to issue; (b) the characteristics of each share class (i.e. voting rights, dividends, and entitlement to the business’ assets upon dissolution); (c) the classes and amounts of shares that will be issued to the first shareholders; and (d) the corporation’s fiscal year-end. Share any instructions from your accountant with your business lawyer.
Who will be the first shareholders, directors, and officers?
Decide who will be the initial shareholders, directors, and officers of the corporation and confirm their mailing addresses. Shareholders have ownership interests in the corporation, which are represented by shares. They make important decisions, including electing a board of directors to supervise and manage the business’ activities. Directors must be individuals who are at least 18 years of age, are not incapable of managing property, and are not bankrupt. Subject to limited exceptions, if a federal corporation has four or more directors, at least 25% of them must be resident Canadians. If there are fewer than four directors, at least one must be a resident Canadian. The directors appoint the officers of the corporation who manage the day-to-day operations of the business. A corporation must have at least a president and a secretary, and one individual may hold more than one office.
Where will the corporation’s registered office address and mailing address be?
Decide on the corporation’s registered office address and mailing address. The registered office address of an Ontario corporation must be in Ontario, and the registered office address of a federal corporation must be in the province or territory set out in its articles of incorporation.
With which bank will your corporation open its bank account?
Select the bank with which you will open your corporation’s account. Every share that is issued to a shareholder must be paid for, and those funds must be transferred or deposited into your business bank account and documented in the event of an audit by the CRA. Your bank may also provide you with banking resolutions to sign and store in your corporate minute book. To open a corporate bank account, present the bank with a copy of your articles of incorporation.
Are there any existing agreements that may impact the incorporation of your business?
Collect existing agreements that may shape how your business is incorporated. For example, a franchise agreement may restrict your corporation’s business activities to those related to the franchise (which must be set out in your articles of incorporation) or may require specific language on share certificates, and a commercial lease may require you to obtain your landlord’s consent before assigning your lease to your corporation.
Do you have questions?
As you meet with your experts and make decisions for your corporation, ask the questions that come to mind. The best experts will be as dedicated to answering your questions as they are to asking their own.
Conclusion and next steps
Once your business lawyer has obtained your information and instructions, he/she can review the laws and regulations that apply to you, run searches on your corporate name choices, and prepare and file your articles of incorporation. When your business is incorporated, he/she can file your initial information return, order your minute book, prepare your corporation’s organizational documents, and register your trade name(s).
When the set-up and initial administrative process is complete, consider protecting your interests in your corporation, minimizing disputes, and further limiting your liability by entering into a shareholders’ agreement with the other shareholders of your corporation. Stay tuned for our next blog respecting the impact and importance of a shareholders’ agreement.