Area of Law: Business Law
Answer # 219
How to incorporate a businessRegion: Ontario Answer # 219
The legal form of business you choose has an important affect on the entire nature and structure of your business. A lawyer can help you decide if you should incorporate and what corporate structure is best for you. Before you register your corporation, you must choose a corporate name, draft your Articles of Incorporation, and submit a processing fee. The following is a brief overview of the process.
First, you must choose a corporate name. If you do not want to choose a name, you can simply use the corporate number assigned by the Ministry of Government and Consumer Services. If you do decide to use a corporation name, you must make sure it is not being used by another company. To do this, you will need to conduct a NUANS name search. NUANS stands for New Upgraded Automated Name Search. There is a small fee and you will receive a report containing all the businesses and trademarks with names similar to the one you propose to use. The NUANS report must be submitted to the Ministry along with the rest of the application requirements.
Articles of Incorporation
Second, the Articles of Incorporation must be drafted. The Articles of Incorporation is a document that sets out important information about the structure of your corporation, such as the minimum and maximum number of directors your corporation is allowed to have, the different classes of shares, and the names of the incorporating directors.
Should the business be incorporated federally or provincially?
If your business will be located or operate regularly in more than one province or in foreign countries, it may be best to incorporate under federal law. This allows you to carry on business in all Canadian provinces without a special license, although a simple registration may still be required in some provinces.
If you plan to operate mostly within one province, a provincial incorporation will likely suit you. If you do business in another province, however, you may have to register it there and may be required to obtain an extra-provincial licence.
You will likely need a lawyer to register in a province outside where you live. Also, some jurisdictions have residency requirements. Most Canadian laws require that a majority of the directors of a corporation be Canadian residents. Both the federal Canada Business Corporations Act (CBCA) and the Ontario Business Corporations Act require that at least 25% of the directors be Canadian residents, except where there are fewer than four directors, in which case at least one must be a resident Canadian.
Permanent residents of Canada who are not yet citizens may qualify as resident Canadians.
Foreign investors can deal with the residence requirement for directors by finding Canadians to represent them on the board of the company. Ontario also allows “unanimous shareholder agreements” to be created, which give the power of the directors to manage the business in whole or in part to the shareholders.
Filing for Incorporation
To incorporate a business in Ontario, the following must be submitted to the Ministry of Government and Consumer Services, Companies and Personal Security Branch:
- Two copies of the Articles of Incorporation,
- NUANS report for the proposed name (if not using assigned number name), which must be submitted within 90 days of when it was generated,
- Cover letter containing the name and telephone number of a contact person, and a return address; and
- The required fee
Filing of the Articles of Incorporation can be done by mail, in person, or online. You should ensure that you have kept a copy of all documents that you submit, in case there is a processing problem. Once the Ministry registers your corporation, it will issue a corporation number, and provide you with a certified copy of the Articles of Incorporation.
Issuance of shares, by-laws, and minute books
After incorporation, shares must be issued from treasury. The number and class of shares and the people purchasing them are unique to each corporation. Once the shares have been purchased, the shareholders can elect directors, and in turn the directors can appoint officers. As well, the by-laws of the corporation and other issues, such as deciding on the bank the corporation will use and who the accountant will be, must be voted on and passed in the first meeting.
Finally, the law requires that all corporations maintain minute books. A minute book will contain documents, such as, minutes of important meetings, the by-laws, the directors’, shareholders’ and officers’ registers, and a copy of the Articles of Incorporation. Minute books can also contain other documents, such as copies of important loan documents and government filings.
Filing required after incorporation
Once a company has been incorporated, and its affairs have been organized, you must then file a Form 1 Initial Return / Notice of Change form with the Ministry. This form is used in order for the Ministry to obtain further information, such as who the directors and officers of the corporation are, and to confirm the head office and mailing addresses of the corporation.
Selecting corporate and business names, incorporating a company, issuing shares, and preparing appropriate by-laws and minute books for a corporation can be complicated legal issues. You should consult a lawyer for legal advice and assistance.
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