Incorporation and Business Registration
There are three main forms of business ownership:
Sole Proprietorship: a business owned by only one person. The owner has unlimited liability, which means that in case the business cannot pay its suppliers or creditors, they can go after the personal assets of the owner.
Professional Corporations: the Business Corporations Act allows a number of regulated professionals to incorporate their practices. The following professions are eligible to operate a professional corporation:
- Chartered professional accountants
- Health professionals regulated under the Regulated Health Professions Act
- Social workers and social service workers
Partnership: a business owned by two or more individuals who contribute resources into the legal entity, and divide the profits of the business among themselves. There are three types of partnership:
- General: all partners have unlimited liability for partnership liabilities
- Limited: The limited partners have limited liability (to the extent of their investment in the partnership) for liabilities of the partnership.
- Limited liability (LLP): is a general partnership in which liability of even the general partners is limited. If something goes wrong the partnership itself can be sued, and a particular partner who did wrong will support the consequences, but the assets of the other partners are safe.
Corporation: is a business that is a separate legal entity from its owners (shareholders). The owners do not have personal liability for the debts of the corporation. The corporation has the same rights and obligation under Canadian law as a natural person, which means it can acquire assets, enter into contracts, obtain a loan, etc…The corporation’s money and assets belongs to the corporation and not to its shareholders. If the corporation goes bankrupt, the shareholders will lose only their investments, unless the shareholders provided personal guarantees for the corporation’s debts.
Corporations can be incorporated:
Federally: Federal incorporation gives you the right to use your business name across all of Canada. It protects you even if there is another business in a different province using the same name. It gives you global recognition.
Obligation for federally incorporated business:
- File articles of incorporation
- File annual returns
- Notices of any changes in the board of directors, the address of the registered office
- File articles of amendment if changes to the structure of the corporation are made.
- File corporate income tax returns with the Canada Revenue Agency
- Register in any province or territory where it carries on business.
Provincially: Each provincial incorporation is a stand-alone process. To do business in another province, you will need to register with that authority as well. If your business plans to be operating primarily within one province, provincial incorporation may be enough for you, and you can always change later to federal incorporation later if required (however, there is no guarantee that the corporation name will be available later on to be used for federal incorporation).