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Steps for Company Formation in Canada

Steps for Company Formation in Canada

Canada is a Country which is located in the northern part of North America. Incorporation in Canada is considered to be easy simple and efficient because of the primary benefit that a corporation of Canada is separate from the personal and business obligations of the incorporators. This benefit is that a person cannot be held liable for the debts or actions of the corporation. There exists a separate legal entity of the corporation apart from its owners. Although in the case of a Sole proprietorship the liability becomes unlimited. Here in this article, we are going to tell steps for Company Formation in Canada.

What is the Company Incorporation Process in Canada?

Name of Corporation: The basic step before beginning the process of incorporation in Canada is deciding what to name the corporation. Every corporation should have a name known as the corporate name. It should be distinctive and must not be misleading or similar to the existing company’s name. The corporation in Canada is rigorous in terms of granting names. There should be a pre-approval of the corporate name before filing the articles of incorporation. The name of the corporation should include the word Ltd, Inc, Corp or S.A.R.F. Corporations Canada adds one of these to the proposed name if not included in the proposed name by the incorporators.

Articles of Incorporation: it is a step for establishing the structure of the corporation. The Articles of Incorporation needs to be signed by the initial members or the persons incorporating the corporation. There is an online facility available for filing of the Articles of Incorporation. Filing can be done under form -1 which is available in the official federal incorporation site. The articles of incorporation shall be in the official language which is either French or English.  The Articles of Incorporation should clearly state the

  • Proposed company name
  • The province or territory in Canada where the corporation shall be located.
  • The share structure and also the restrictions on share transfer
  • The number of Directors of the Corporation
  • Any type of restrictions so applicable to setting up the business or the business activities.
  • Any other provisions if any
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Establishment of registered office address and the First Board of Directors.

The registered office of the Corporation should be a place where all the corporate records and official documents are kept. The information relating to the corporate office address is required to be made public.

The Directors of the company should fulfill the basic mandatory eligibility criteria such as:

  • The proposed Director should be of at least 18 years in age.
  • He/she should not be declared incapable by a court in Canada or any other country.
  • He should be an Individual (Corporation cannot be a Director).
  • Not in a bankrupt

Application form and fees payment: there are several options available for filing in Canada. The interested person can go for physical or online filing.

Application processing: the application is supposed to be complete when it includes the necessary documents and the forms are complete and signed and also the fee is included. The certificate of incorporation is received after the application is filed and the certificate clearly mentions the corporate name, corporate number and the date of incorporation which is usually the date on which the corporations Canada receives the Article of Incorporation after the articles are filed.

What are the types of Corporations in Canada?

Sole Proprietorship:

This form of corporation is regarded as the most straightforward way of setting of business as the cost of starting this is low, it has comparatively less paperwork also involves minimal working capital and has direct control. In this type of corporation, the sole proprietor is responsible and is personally liable for the activities of the company. In this type of corporation there lies unlimited liability along with the factor that the creditors have the right to claim against all the personal as well as business assets. It is not a separate legal entity and belongs to the owner of the corporation.

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Corporation:

A corporation is a type of business structure which is different from its owners. That is it is a separate legal entity and is separate from its owners. Therefore no personal liability of the debts or obligations of the company are assumed to be of the owners and their liability remains limited to the value of investments made by them. A corporation has a continuous existence as compared to a sole proprietorship. There are two types of corporations:

Private Corporations: this type of corporation can be formed with one or more people and with the majority of its directors residing in Canada. This type of corporation cannot sell shares or securities to the public.

Public corporations: these corporations have the discretion of selling of shares and securities to the public. These corporations must comply with the Ontario Securities Act Regulations.

Cooperative:

A cooperative is a type of structure wherein each member of the cooperative is voluntary and democratically running the business. A cooperative is one where the returns are limited with interest in investment and distributes its profits to members proportionately.

What are the advantages of a Canadian Company?

A Canadian Company provides with the following benefits. Such as:

  1. Stability: Canada has a great banking system as is said by the World Economic Forum. It is considered to have a sound banking system.
  2. Limited Liability: the liability of the members of the corporation is limited to the extent of their holding in the company. Thus this serves as a major advantage to the members of the corporation.
  3. Tax advantages: there exists tax advantage if incorporating a business in Canada such as lower tax rates, and carrying forward of the losses of previous years for setting off of losses in subsequent years.
  4. Industrial Strength: Canada has a diversity of Industries such as Fiber optics, aerospace, biopharmaceuticals[1], medical devices, agricultural food, etc. These sectors are gaining popularity if compared to American markets which are a positive aspect and is considered to be beneficial for the investors since it is gaining the market
  5. High Skilled workforce: Canada is a highly educated economy as the population possesses high skills in terms of manpower.
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Taxation Aspect

The corporate taxes are much lower as compared to personal living expenses but the company is required to generate a substantial amount of profits in order to be advantageous.

Mandatory Compliance

A corporation in Canada is required to maintain the records of the important corporate documents; such as articles of incorporation, certificate of incorporation, minutes of the meeting, shareholders agreement, etc. If in case the company is unable to comply with these mandatory compliances, then the corporation is considered to be guilty of the offense and liable for fine.

Conclusion

The Canadian Economy can be beneficial in many ways. Incorporating the business and splitting the business income with family members can also be beneficial in order to attain tax advantage. A Canadian Company can achieve tax advantage beyond the available reduced tax rates for corporations as well. The limited liability of the corporation, along with the tax advantages and perpetual existence makes it a feasible site for investors to invest in Canada. Thus it is worthwhile to invest in Canada since it serves the benefits to the members of the corporation thereby serving many benefits.

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