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Sole proprietorship

A sole proprietorship offers a simple and inexpensive legal structure. In fact, a sole proprietorship is not required to register with the REQ (certain exceptions exist), and does not have to file a separate tax return. In addition, its operating costs are lower because the financial management of the business can be conducted through the self-employed worker’s bank account. Note that it remains recommended to ensure to use a separate bank account from that of the self-employed worker to manage the sole proprietorship’s assets. It is often self-employed workers, freelance workers or service workers who operate their activities under the form of a sole proprietorship.

A person exercising its economic activities under a sole proprietorship assumes all the risks as well as personal responsibility for the activities of the sole proprietorship, which includes the responsibility of the individuals who are employed by the sole proprietorship; the subordinates. That being said, at any time, a sole proprietorship can change its legal structure and incorporate its activities. Not only it will reduce its exposure to risk, but facilitate the research for investments, the development of turnover by including partners or the eventual resale of the business. 

Partnership

The two most common types of partnerships are the general and limited liability partnerships. These partnerships pool their assets, share their profits, and express a common intention to work collaboratively towards the same objectives.  

Partnerships must register with the REQ under the Act respecting the legal publicity of enterprises (hereinafter the “ALPE“). A partnership that fails to respect this obligation exposes itself to consequences that may affect its legal structure.

The general partnership represents the basic system of partnerships where partners in such assume a collective and personal liability for the rights and obligations of the partnership as well as for the faults of subordinates. 

The limited liability partnership is the preferred structure for professionals where partners share a collective responsibility for the general obligations of the partnership, but maintain a personal liability for their professional misconduct and certain types of civil torts.

Corporation

A corporation distinguishes itself from any other business structure through the creation of a legal person that is separate from the individuals who compose the corporation or hold an economic interest in it. A corporation represents the most extensive form of limited liability since only certain individuals and in specific circumstances may incur a personal liability for actions taken in performing their duties in favour of the corporation. In addition, the legal existence of a corporation continues as long as the directors and shareholders of the corporation permit it. Thus, a corporation may existing indefinitely. 

A corporation offers the best legal security of all business structures. Indeed, because corporation has its own legal personality, it may hold rights and obligations separately from that of its shareholders, directors, and officers. Consequently, unless rare exceptions, the personal assets of the shareholders, directors, and officers of a corporation are protected from the corporation’s creditors in the event that the corporation is unable to repay its debts in time. 

In addition, the corporation offers a 2 uniques protection tool to its shareholders: the shareholders’ agreement and the unanimous shareholders’ agreement. 

• The shareholders’ agreement is a contract between the shareholders of the corporation that governs their behaviour and provides for the actions to be undertaken in specific situations, thereby reducing the risk exposure of the corporation and its shareholders. For example, a shareholders’ agreement will set out the rules to be followed if a shareholder wants to sell all of its shares.

• The unanimous shareholders’ agreement aims to withdraw, in part or in whole, the powers of the board of directors and to give it to the shareholders. 

Incorporating has several tax advantages when the net income of the corporation is positive and unused. These advantages take the form of tax rates on income generated, tax deductions and exemptions, and tax credits.

For additional information on this subject, we invite you to contact a chartered accountant. If you want to be referred to our partner chartered accountant, please contact us here. 

A corporation offers the greatest flexibility and financing capacity. 

On one hand, a corporation has the possibility to pay in the form of salaries, dividends or loans, which allows shareholders, directors, and officers to benefit from more attractive income tax rates than in the case of the payment by salary.

On the other hand, a corporation can sell shares to a private or public legal or natural person, under certain conditions. In return, the corporation receives capital investments from the holder of the share, the shareholder. By definition, a share sold represents an interest percentage in the activities of the corporation that grants, depending on its nature, a type of decision-making control and/or an interest in the distribution of the corporation’s net income.   

In addition, since a corporation has its own legal personality, it may contract loans to finance its activities. This type of financing does not transfer control in the corporation, but must be repaid. Therefore, a corporation may use the entirety of its assets to secure the loan which allows it to obtain better interest rates while benefiting from the lower corporate income tax rate; this is commonly referred to as an ALLPAAP. In fact, loan financing allows a corporation to keep the profits generated, increase its investments and make its assets grow. 

Note that certain lenders may require that the shareholders of a corporation provide a personal and joint and guarantee on the loan.

Establishing the registered office is a decision that takes into account the scope of the corporation’s activities. In other words, if a corporation carries on the majority of its business in Quebec, incorporation under the QBCA allows the head office to remain in Quebec. Note that this does not prevent a corporation from operating outside Quebec; there are a various legal procedures that facilitate the expansion of a corporation’s operations. 

Conversely, incorporating under the CBCA allows the establishment of a head office anywhere in Canada.

For additional information about your corporation’s headquarters, please consult our article that compares federal and provincial incorporations by clicking here.

The Professional Code of Quebec (hereinafter the “CPQ“) authorizes certain professionals to incorporate their practice. It is the professional order that regulates this incorporation through conditions that must be respected by professionals that allows or prohibits them from incorporating.  

For professionals, incorporation offers certain tax advantages and, in addition to limiting their liability with respect to certain activities, allows them to extend the methods of financing their practice.

For additional information about incorporating your professional practice, please contact us here or contact your professional order. 

Choosing your business’ legal name, in other words its corporate name, is a task that must take into account several practical and legal considerations.

From a legal standpoint, the corporate name must comply with various legislative requirements. In Quebec, the main law that governs business names is the ALPE. This Act provides that the name of a corporation must comply with the Charter of the French Language and must not be confusing with the name of an already-existing business. Of course, additional conditions are provided for within the Act, and must be respected. 

In addition, business corporations must register with the REQ and fill out statements that disclose certain information in order to protect the business, and inform the public and third parties of the business’s identity. 

Shareholder

A shareholder is a legal or natural person who holds a fractional unit of the capital of a corporation. In other words, it is a person who holds at least one share of the share capital of a corporation.

For the shareholder, the acquisition of shares means the purchase of a right or interest in a corporation. The right or interest varies depending on the type of share acquired. 

Director

A director of a corporation is a natural person who :

• has at least 18 years of age,
• is not found to be incapable of managing property by the law or by a court of Canada or another State,
• has not the status of bankrupt, and
• has not been subject to a court order prohibiting him or her from serving as a director.

A director is responsible for managing the affairs of the corporation. Any director is elected by the shareholders of a corporation at the first meeting of shareholders or at any succeeding annual shareholders’ meeting, and holds office for a maximum of 3 years. 

It is the articles and regulations of the corporation that state the number of directors to be elected. Typically, this number depends on the size of the corporation and its holdings. When more than one director is elected, a Board of Directors can be formed. 

Directors have a duty of care, competence and loyalty in favour of the corporation they administer. Thus, every director must act with honesty, in good faith and in the best interests of the corporation. In the performance of their duties, directors have the power to delegate part of their tasks while maintaining a duty of supervision over the delegated tasks. Directors are not liable for the obligations incurred by the corporation. However, they may retain a personal liability that is dual under the QBCA and the Quebec civil Code.

Officer 

An officer is a natural person who is responsible for the day-to-day management of the corporation. An officer has to:

• perform his or her duties, 
• respect the law, and 
• act honestly and with loyalty in the performance of his or her duties. 

Like directors, officers are not responsible for the contractual obligations of the corporation, but retain a personal liability that is dual under the QBCA and the Civil Code of Quebec.

Registering a corporation under the QBCA requires the payment of certain fees. In return, REQ issues a certificate of incorporation and publishes your articles of incorporation in its registry. 

Once the company is incorporated, an annual declaration must be filed each year, but does not incur additional fees if the declaration is filed on time. For any other transaction and the filing of any other application or documents, the REQ may require the payment of additional fees. In addition, note that any change to the information about your corporation requires the filing of an update declaration that reflects the change within 30 days of the change.

In addition to the government fees, other expenses will be incurred to draft your articles of incorporation and have your minute book set up by a lawyer, as well as accounting fees to maintain a financial book for the production of your corporation’s financial statements, taxes and tax returns. 

The Articles of incorporation refer to the legal basis of your corporation that contain its foundational provisions, particularly:

• the legal name of the corporation,
• the share capital,
• restrictions on the transfer of shares,
• the number of directors,
• restrictions on the line of business,
• the date and time of issue of the certificate of incorporation,
• the founders, and
• any other information permitted by law.

Following the registration of your corporation and the filing of the Articles of Incorporation with the REQ, a Certificate of incorporation is issued. The Certificate of incorporation is a document that certifies the legal compliance of your incorporation. A date is assigned to the Certificate of incorporation which represents the official date of your incorporation. This date is provided by the articles of incorporation attached to your application or by the REQ when it certifies that your incorporation is legally valid.

Once incorporated, certain fixed fees must be paid annually. To operate your business efficiently, you must keep a strict accounting book because every year your corporation must fill out its financial statements and tax returns, and declare its taxes (GST and QST). Tax returns must be filed with the federal and provincial governments within 6 months of the fiscal year-end date. In addition, business taxes must be paid within 3 months following the fiscal year-end date.

These transactions increase the annual costs to be disbursed, and it is recommended to hire a chartered accountant to minimize errors and additional costs as a failure to comply with the abovementioned obligations can result in considerable penalties. For additional information on this subject, we invite you to contact a chartered accountant. If you want to be referred to our partner chartered accountant, please contact us here.

The articles of incorporation provide for one OR more classes of shares.

If the articles of incorporation provide for only one class of shares, it must contain the right to vote at the shareholders’ meetings, the right to dividends when the corporation declares dividends, and the right to the remainder balance. The right to the remainder balance is a right that arises upon the dissolution or liquidation of the corporation, and entitles the shareholder to receive the remaining property of the corporation in proportion to the shares held by the shareholder once all debts of the corporation have been paid.

If the articles of incorporation provide for more than one class of shares, the right to vote, the right to dividends, and the right to the remainder balance must be attributed to at least one class of shares.  

In practice and as a general rule, 2 types of shares are recognized:

• common shares that confer voting rights, dividend rights and residual rights; and
• preference shares that give priority over common shareholders, such as a priority in the payment of dividends.

Certain changes may be made to the classes of shares or to the rights provided for in a class of shares. These changes are subject to certain terms and conditions.

Intellectual property refers to the rights in objects created by a person. Thus, intellectual property law provides protections for people who conceive and materialize an idea. For example, one will have a copyright on a painting, a patent on a drug substance or a trademark right on a company logo.

For a corporation, their intellectual property represents an added value because it facilitates access to credit, investment and income. For example, owning a patent on a technology makes it possible to commercialize that technology through licensing or assignments of rights.

Furthermore, protecting the intellectual property minimizes the risk exposure of corporations. When investors conduct due diligence assessments, the exclusive exploitation of intellectual property rights catalyzes a corporation’s return and risk exposure, thereby increasing its financing potential in the eyes of the investor.

The incorporation of your company is an important step in its constitution, reason why validating your incorporation by a lawyer is essential. Although it is possible to register your corporation without the assistance of a lawyer, you must keep in mind that the REQ does not offer the minutes book nor the articles of incorporation for your corporation. Therefore, you will have to have your company’s articles of incorporation and minutes book drafted by a lawyer: a task that can be laborious and costly. With Lex Start, it is possible to incorporate for an affordable and fixed price with the help of a lawyer without compromising the legal security of your company by clicking here.

A continuance procedure allows a corporation to continue its legal existence under a statute other than its incorporating statute without having to dissolve itself. This procedure is possible for any corporation whose incorporating statute allows for continuance, even in the case of corporations incorporated abroad. There are two processes for corporate continuance, the import and the export process. 

The QBCA allows companies incorporated under its law to use the continuance procedure, subject to the authorization of the shareholders of the applicant corporation and the REQ. From a practical standpoint, the board of directors of the applicant corporation will have to call for a shareholders’ meeting to adopt a special resolution authorizing the filing of a continuance procedure with the REQ. 

If the REQ authorizes the continuance, you will be required to complete, sign and send to the receiving authority, for example Corporations Canada, a form concerning the continuance clauses, a form relating to your head office and your first board of directors, as well as a NUANS report if you have chosen a personalized corporate name. 

If you have any questions regarding these procedures, our legal professionals will be able to answer you.

The main difference between a not-for-profit organization (hereinafter “NPO”) and a corporation lays in their respective missions. Generally, an NPO aims to facilitate the grouping of persons with the intention of offering the provision of one or more services dedicated to one or more groups of people in order to promote, maintain or develop the common good. 

Despite its mission, an NPO has the capability of holding capital and of generating profits from its capital. In fact, an NPO should generate profits to ensure the continuity of its mission and the achievement of its objectives. However, the profits cannot be distributed amongst its directors, officers or members. 

Note that an NPO must be distinguished from a registered charity; a registered charity must meet several additional legal conditions to benefit from this status.

Sole proprietorship

A sole proprietorship offers a simple and inexpensive legal structure. In fact, a sole proprietorship is not required to register with Corporations Canada, certain exceptions exist, and does not have to file separate tax returns. On one hand, its operating costs are lower because the financial management of the business can be achieved through the proprietor’s bank account. On the other hand, it remains recommended to manage the finances of a sole proprietorship through a bank account separate from that of the proprietor’s. It is often self-employed workers, freelance workers or service workers who operate their activities in the form of a sole proprietorship.

A person exercising its economic activities under a sole proprietorship assumes all of the risks as well as a personal responsibility for the activities of the sole proprietorship which includes the responsibility of the individuals who are employed by the sole proprietorship; the subordinates. That being said, at any time, a sole proprietorship can change its legal structure and incorporate its activities. Not only it will reduce its exposure to risks but also facilitate the research for investments, the development of turnover by including partners or the eventual resale of the business. 

Partnership

Under Canada’s common law and Quebec’s civil law, a business relationship that involves at least two persons who pool their assets by way of capital investments or services rendered, in return of a share of the profits qualifies as a partnership. There are 3 common types of partnerships:

• general partnerships,
• joint ventures, and 
• limited liability partnerships.

A general partnership does not require a written agreement to exist as long as the co-owners share the profits and losses of the partnership. In a general partnership, partners remain personally liable for the partnership’s and its subordinates’ obligations. Furthermore, partners uphold certain duties in favour of their partners. Unless otherwise provided by a written agreement, all partners share the same profit and control rights with respect to the partnership, and maintain a duty of loyalty and fiduciary in favour of each other that must be respected at all times. 

A joint venture is a general partnership that is constituted for a specific project or for a specific period of time. 

A limited liability partnership requires a written agreement to exist and further paperwork to establish its structure. The limited liability partnership is the preferred structure of professionals. Partners of such a structure share collective responsibility for the general obligations of the partnership, and assume a personal liability for professional faults and certain types of torts.

Note that the government of a Canadian province or territory may require additional conditions to be respected for the aforementioned partnerships. 

• For additional information about establishing a partnership in Quebec, you can visit our Quebec incorporation page.
• For additional information about establishing a partnership in Ontario, you can visit our Ontario incorporation page.  
• For additional information about establishing a partnership in any other province or territory in Canada, please contact us here. 

Corporation 

A corporation distinguishes itself from any other business structure through the creation of a legal person that is separate from the individuals who compose the corporation or hold an economic interest in it. A corporation represents the most extensive form of limited liability since only certain individuals and in specific circumstances may incur a personal liability for actions taken in performing their duties in favour of the corporation. In addition, the legal existence of a corporation continues as long as the directors and shareholders of the corporation permit it. Thus, a corporation may existing indefinitely. 

A corporation offers the best legal security of all business structures. Indeed, because corporation has its own legal personality, it may hold rights and obligations separately from that of its shareholders, directors, and officers. Consequently, unless rare exceptions, the personal assets of the shareholders, directors, and officers of a corporation are protected from the corporation’s creditors in the event that the corporation is unable to repay its debts in time. 

In addition, the corporation offers a 2 uniques protection tool to its shareholders: the shareholders’ agreement and the unanimous shareholders’ agreement. 

• The shareholders’ agreement is a contract between the shareholders of the corporation that governs their behaviour and provides for the actions to be undertaken in specific situations, thereby reducing the risk exposure of the corporation and its shareholders. For example, a shareholders’ agreement will set out the rules to be followed if a shareholder wants to sell all of its shares.
• The unanimous shareholders’ agreement aims to withdraw, in part or in whole, the powers of the board of directors and to give it to the shareholders.

Incorporating has several tax advantages when the net income of the corporation is positive and unused. These advantages take the form of tax rates on income generated, tax deductions and exemptions, and tax credits.

For additional information on this subject, we invite you to contact a chartered accountant. If you want to be referred to our partner chartered accountant, please contact us here. 

A corporation offers the greatest flexibility and financing capacity. 

On one hand, a corporation has the possibility to pay in the form of salaries, dividends or loans, which allows shareholders, directors, and officers to benefit from more attractive income tax rates than in the case of the payment by salary.

On the other hand, a corporation can sell shares to a private or public legal or natural person, under certain conditions. In return, the corporation receives capital investments from the holder of the share, the shareholder. By definition, a share sold represents an interest percentage in the activities of the corporation that grants, depending on its nature, a type of decision-making control and/or an interest in the distribution of the corporation’s net income.   

In addition, since a corporation has its own legal personality, it may contract loans to finance its activities. This type of financing does not transfer control in the corporation, but must be repaid. Therefore, a corporation may use the entirety of its assets to secure the loan which allows it to obtain better interest rates while benefiting from the lower corporate income tax rate; this is commonly referred to as an ALLPAAP. In fact, loan financing allows a corporation to keep the profits generated, increase its investments and make its assets grow. 

Note that certain lenders may require that the shareholders of a corporation provide a personal and joint and guarantee on the loan.

If your corporation operates the majority of its business on a national scale, it is advantageous to incorporate under the CBCA that allows the head office to be established anywhere in Canada. 

For additional information about your corporation’s headquarters, please consult our article that compares federal and provincial incorporations by clicking here.

For professionals, incorporation offers certain tax advantages and, in addition to limiting their liability for certain activities, to extend the methods of financing their activities. It is your professional order that regulates the incorporation through conditions that must be respected by professionals that allows or prohibits them from incorporating as corporations. 

For additional information about incorporating your professional practice, please contact us here or contact your professional order.

In legal terms, the name of your corporation refers to its corporate name; the name that appears on all contracts, invoices or other legal documents of your corporation. The corporate name may differ from the operating name that you use on a website for example, as well as from a trademark or a domain name which are subject to different regulations.

The corporate name may be numeric or in letters. 

A numerical name is a quick and easy way to obtain a corporate name. It is assigned by Corporations Canada and is accompanied by the legal element of the legal structure you have chosen (i.e. INC., CIE., etc.). Note that a numeric name does not prevent you from using an operating name in letters that may be useful for exploiting a trademark for example.

For additional details on the legal requirements regarding your company’s corporate name, please contact one of our legal professionals.

Shareholder  

A shareholder is a legal or natural person who holds a fractional unit of the capital of a corporation. In other words, it is a person who holds at least one share of the share capital of a corporation.

For the shareholder, the acquisition of shares means the purchase of a right or interest in a corporation. The right or interest varies depending on the type of share acquired.  

Director

A director of a corporation is a natural person who:

• has at least 18 years of age,
• is not found to be incapable of managing property by the law or by a court of Canada or another State, and
• has not the status of bankrupt.

A director is responsible for managing the affairs of the corporation. Any director is elected by the shareholders of a corporation at the first meeting of shareholders or at any succeeding annual shareholders’ meeting, and holds office for a maximum of 3 years. 

It is the articles and regulations of the corporation that state the number of directors to be elected. Typically, this number depends on the size of the corporation and its holdings. When more than one director is elected, a Board of Directors can be formed. 

Except in rare instances provided by law, a Board of Directors that is composed of:

• 4 or more directors, must be composed of at least 25% Canadian residents,
• less than 4 directors, must be composed of at least 1 Canadian resident, and
• a sole director who is a Canadian resident.

Directors have a duty of care, competence and loyalty in favour of the corporation they administer. Thus, every director must act with honesty, in good faith and in the best interests of the corporation. In the performance of their duties, directors have the power to delegate part of their tasks while maintaining a duty of supervision over the delegated tasks. Directors are not liable for the obligations incurred by the corporation. However, they may retain a personal liability that is dual under the CBCA and common law or the Quebec civil Code.

Officer 

An officer is a natural person who is responsible for the day-to-day management of the company. An officer has to:

• perform his or her duties, 
• respect the law and 
• act honestly and with loyalty in the performance of his duties. 

Similarly to directors, officers are not responsible for obligations incurred by corporation. However, they retain a personal liability under the CBCA and civil responsibility under the Civil Code of Quebec or the general common law in the rest of Canada.

Individuals with significant control

Since June 2019, any business incorporated under the CBCA must maintain a registry of individuals with significant control in the corporation. The purpose of this registry is to increase public and investor confidence in Canadian businesses, to provide a greater degree of transparency and to help government authorities counter money laundering and tax evasion. In fact, a financial institution with which you conduct business may inquire about this registry.

A person with significant control is defined as a person who “owns, controls or manages a significant number of shares, or a person who does not own shares but nevertheless has a significant influence on the company, or a person who enjoys any combination of these factors”. A significant number of shares represents a minimum of 25% of the voting shares or a minimum of 25% of all shares based on the fair market value of the shares. 

The register must be available for inspection by shareholders of the corporation, creditors of the corporation, government agencies and Corporations Canada. In addition, the registry must contain specific information about the persons having significant control and must be kept up to date.

Every corporation must have a minutes book that is made available to the directors, shareholders, and creditors of the corporation. This is not only a legal requirement but also a recommended practice. 

The minute book keeps track of the administrative and legal evolution of your corporation throughout the following documents:

• the articles of incorporation,
• the by-law(s),
• the minutes or written resolutions in lieu of the meetings of the Board of Directors and the shareholders’ meetings,
• the registry of directors, shareholders, officers, etc, 
• the statement of account of the shares issued or transferred,
• certificates of issued shares, and
• shareholder agreements.

When incorporating, you should consider whether you prefer to receive a physical or a digital minutes book. Note that the law does not sets out any specific obligations in that regard as long as the minutes book remains signed and accessible at the corporation’s head office.

The main difference between a physical minute book and a digital minute book lays in the costs incurred by each type of book. A physical minutes book generally costs more than a digital minutes book because of the printing and operating costs. If you want to reduce your incorporation costs, you can opt for a digital minutes book that you can print and organize yourself.

Registering a federal corporation requires the payment of certain fees and the filing of a NUANS report if you decide to use a corporate name. In return, the Director of Corporations Canada issues a Certificate of incorporation for the corporation and publishes your Articles of incorporation in its registry. Note that any change in information about your corporation requires the filing of a notice of change reflecting the change with the Director of Corporations Canada within 15 days of the change.

If your corporation wishes to operate in more than one province or territory in Canada, it must register with the appropriate provincial or territorial authorities. In Quebec, you will have to register your corporation with the Registraire des Entreprises.

In addition to the government fees, other expenses will be incurred to draft your articles of incorporation and have your minute book set up by a lawyer, as well as accounting fees to maintain a financial book for the production of your corporation’s financial statements, taxes and tax returns. 

The Articles of incorporation refer to the legal basis of a corporation that contain its foundational provisions, particularly:

• the legal name of the corporation,
• the sharing of share capital,
• restrictions on the transfer of shares,
• the number of directors,
• restrictions on the line of business
• the date and time of issue of the certificate of incorporation,
• the founders, and
• any other information permitted by law.

Following the registration of your corporation and the filing of the Articles of incorporation with Corporations Canada, a Certificate of incorporation is issued. The Certificate of incorporation is a document that certifies the legal compliance of your incorporation. A date is assigned to the Certificate of incorporation which represents the official date of your incorporation. This date is provided by the articles of incorporation attached to your application or by the Director of Corporations Canada when it certifies that your incorporation is legally valid.

Maintaining an up to date and valid incorporation  requires the filing of annual update forms and shareholder and directors resolutions with the Director of Corporations Canada. In addition, these documents must also be filed with any other provincial or territorial authority where your corporation is registered.

Corporations incorporated under the CBCA must also file an annual report. This report is not a tax report and is additional to any other requirements that may arise from the Canada Revenue Agency. Annual report verifies the validity of the information held by Corporations Canada about your corporation. You have 60 days after your corporation’s anniversary date to file your annual report. The anniversary date is one of the following dates, depending on your situation: the date of incorporation, the date of amalgamation or the date of continuance (import) of your corporation. This report can be filed online through Corporations Canada’s online database.

It is important to comply with this requirement, otherwise your corporation may be dissolved, thus ending its legal existence. Prior to dissolution, your corporation will be given 120 additional days to file its annual report, following which your corporation will be dissolved permanently. Note that an additional annual fee for filing these documents may be incurred.

Once incorporated, certain fixed fees must be paid annually. To operate your business efficiently, you must keep a strict accounting book because every year your corporation must fill out its financial statements and tax returns, and declare its taxes (GST and QST). Tax returns must be filed with the federal and provincial governments within 6 months of the fiscal year-end date. In addition, business taxes must be paid within 3 months following the fiscal year-end date.

These transactions increase the annual costs to be disbursed, and it is recommended to hire a chartered accountant to minimize errors and additional costs as a failure to comply with the abovementioned obligations can result in considerable penalties. For additional information on this subject, we invite you to contact a chartered accountant. If you want to be referred to our partner chartered accountant, please contact us here.

The articles of incorporation provide for one OR more classes of shares.

If the articles of incorporation provide for only one class of shares, it must contain the right to vote at the shareholders’ meetings, the right to dividends when the corporation declares dividends, and the right to the remainder balance. The right to the remainder balance is a right that arises upon the dissolution or liquidation of the corporation, and entitles the shareholder to receive the remaining property of the corporation in proportion to the shares held by the shareholder once all debts of the corporation have been paid.

If the articles of incorporation provide for more than one class of shares, the right to vote, the right to dividends, and the right to the remainder balance must be attributed to at least one class of shares.  

In practice and as a general rule, 2 types of shares are recognized:

• common shares that confer voting rights, dividend rights and residual rights; and 
• preference shares that give priority over common shareholders, such as a priority in the payment of dividends.

Intellectual property refers to the rights in objects created by a person. Thus, intellectual property law provides protections for people who conceive and materialize an idea. For example, one will have a copyright on a painting, a patent on a drug substance or a trademark right on a company logo.

For a corporation, their intellectual property represents an added value because it facilitates access to credit, investment and income. For example, owning a patent on a technology makes it possible to commercialize that technology through licensing or assignments of rights.

Furthermore, protecting the intellectual property minimizes the risk exposure of corporations. When investors conduct due diligence assessments, the exclusive exploitation of intellectual property rights catalyzes a corporation’s return and risk exposure, thereby increasing its financing potential in the eyes of the investor.

The incorporation of your company is an important step in its constitution, reason why validating your incorporation by a lawyer is essential. Although it is possible to register your corporation without the assistance of a lawyer, you must keep in mind that Corporations Canada does not offer the minutes book nor the articles of incorporation for your corporation. Therefore, you will have to have your company’s articles of incorporation and minutes book drafted by a lawyer: a task that can be laborious and costly. With Lex Start, it is possible to incorporate for an affordable and fixed price with the help of a lawyer without compromising the legal security of your company by clicking here.

The export of a corporation is the process by which that corporation that is incorporated under the CBCA continues its existence under another act of incorporation such as the Quebec Business Corporations Act. Although rare in practice, this procedure becomes useful when the majority of your corporate activities are now concentrated in a single province, for example in Quebec, rather than across Canada, which would justify moving your head office in Quebec.

If you have any questions regarding this procedure, our legal professionals will be able to answer you.

The main difference between a not-for-profit organization (hereinafter “NPO”) and a corporation lays in their respective missions. Generally, an NPO aims to facilitate the grouping of persons with the intention of offering the provision of one or more services dedicated to one or more groups of people in order to promote, maintain or develop the common good. 

Despite its mission, an NPO has the capability of holding capital and of generating profits from its capital. In fact, an NPO should generate profits to ensure the continuity of its mission and the achievement of its objectives. However, the profits cannot be distributed amongst its directors, officers or members. 

Note that an NPO must be distinguished from a registered charity; a registered charity must meet several additional legal conditions to benefit from this status.

Sole proprietorship

A sole proprietorship is a business that has a natural person as its sole owner and does not have a separate legal entity. It is the simplest business structure and comes into effect as soon as one starts working on its own. The owner of the sole proprietorship remains personally liable for the rights and obligations of the sole proprietorship; he or she reaps all of the profits, but remains vulnerable to the creditors of the sole proprietorship for any debts owed. Under the Business Names Act (hereinafter “BNA”), a sole proprietorship can own and register a business name. 

Note that a sole proprietorship can change its legal structure and incorporate its activities. Not only it will reduce its exposure to risks, but also facilitate the research for investments, the development of turnover by including partners or the eventual resale of the business.  

Partnership

There are 3 common types of partnerships: 

• the general partnership, 
• the limited partnership, and 
• the limited liability company.

A general partnership is composed of at least two owners, either natural persons, legal entities or other enterprises without legal personality. A partnership does not have its own legal personality and must express a common intention to generate a profit. Therefore, the owners of a partnership share the rights and obligations, and the profits and losses of the partnership. However, they cannot be employees of the partnership. Under the BNA, a partnership can own and register its business name. It is common for a sole proprietorship to have a second owner, in which case a partnership is then created. 

A limited partnership has at least one general partner who remains liable for the obligations of the partnership, and one or more limited partners who assume a liability for the obligations in proportion to the amount paid to the partnership. This type of partnership is governed by the Limited Partnerships Act (hereinafter “LPA”) and must be registered with the Director of MGCS. 

A limited liability partnership allows for partners who own the partnership as well as business partners who do not own the partnership. Thus, only the owning partners assume certain responsibilities to the limited liability partnership. It is common for professionals such as doctors or lawyers to form a business structure in this form. This type of partnership is governed by section 44.1 of the Partnerships Act. 

Corporation

A corporation distinguishes itself from any other business structure through the creation of a legal person that is separate from the individuals who compose the corporation or hold an economic interest in it. A corporation represents the most extensive form of limited liability since only certain individuals and in specific circumstances may incur a personal liability for actions taken in performing their duties in favour of the corporation. In addition, the legal existence of a corporation continues as long as the directors and shareholders of the corporation permit it. Thus, a corporation may existing indefinitely. 

A corporation offers the best legal security of all business structures. Indeed, because corporation has its own legal personality, it may hold rights and obligations separately from that of its shareholders, directors, and officers. Consequently, unless rare exceptions, the personal assets of the shareholders, directors, and officers of a corporation are protected from the corporation’s creditors in the event that the corporation is unable to repay its debts in time. 

In addition, the corporation offers a 2 uniques protection tool to its shareholders: the shareholders’ agreement and the unanimous shareholders’ agreement. 

• The shareholders’ agreement is a contract between the shareholders of the corporation that governs their behaviour and provides for the actions to be undertaken in specific situations, thereby reducing the risk exposure of the corporation and its shareholders. For example, a shareholders’ agreement will set out the rules to be followed if a shareholder wants to sell all of its shares.

• The unanimous shareholders’ agreement aims to withdraw, in part or in whole, the powers of the board of directors and to give it to the shareholders. 

Incorporating has several tax advantages when the net income of the corporation is positive and unused. These advantages take the form of tax rates on income generated, tax deductions and exemptions, and tax credits.

For additional information on this subject, we invite you to contact a chartered accountant. If you want to be referred to our partner chartered accountant, please contact us here. 

A corporation offers the greatest flexibility and financing capacity. 

On one hand, a corporation has the possibility to pay in the form of salaries, dividends or loans, which allows shareholders, directors, and officers to benefit from more attractive income tax rates than in the case of the payment by salary.

On the other hand, a corporation can sell shares to a private or public legal or natural person, under certain conditions. In return, the corporation receives capital investments from the holder of the share, the shareholder. By definition, a share sold represents an interest percentage in the activities of the corporation that grants, depending on its nature, a type of decision-making control and/or an interest in the distribution of the corporation’s net income.   

In addition, since a corporation has its own legal personality, it may contract loans to finance its activities. This type of financing does not transfer control in the corporation, but must be repaid. Therefore, a corporation may use the entirety of its assets to secure the loan which allows it to obtain better interest rates while benefiting from the lower corporate income tax rate; this is commonly referred to as an ALLPAAP. In fact, loan financing allows a corporation to keep the profits generated, increase its investments and make its assets grow. 

Note that certain lenders may require that the shareholders of a corporation provide a personal and joint and guarantee on the loan.

Establishing your registered office is a decision that takes into account the scope of the corporation’s activities. In other words, if a corporation carries on the majority of its business in Ontario, incorporation under the OBCA allows the head office to remain in Ontario. Note that this does not prevent your corporation from operating outside Ontario, as there are a number of legal procedures that expand the scope of a corporation’s operations. 

Conversely, incorporating under the Canada Business Corporations Act (hereinafter “CBCA“) allows the establishment of a head office anywhere in Canada.

For additional information about your corporation’s headquarters, please consult our article that compares federal and provincial incorporations by clicking here.

For professionals, incorporation offers certain tax advantages and, in addition to limiting their liability for certain activities, to extend the methods of financing their activities. It is your professional order that regulates the incorporation through conditions that must be respected by professionals that allows or prohibits them from incorporating. 

The LSA allows professionals to incorporate under a professional company in 3 ways:

• by the law which authorizes the practice of the profession in a professional company and subject to its conditions;
• by the Regulated Health Professions Act, 1991 and its Schedule 1, and 
• by the laws prescribed in section 3.1(2)(b) of the OBCA.

Note that practicing a profession as a corporation is subject to certain applicable terms and conditions set out at law. 

For additional information about incorporating your professional practice, please contact us here or contact your professional order.

Choosing your business’ legal name, in other words its corporate name, is a task should must take into account several practical and legal considerations.

From a legal standpoint, the corporate name must respect various legal requirements. In Ontario, the corporate name must comply with the provisions of the OBCA. If you wish to use an assumed name, you must comply with the requirements of the BNA in that regard. In addition, corporations must register with the Director of the MGSC and fill statements that disclose certain information to protect their corporation and to inform the public and third parties of the identity of the business. 

Note that it is also possible to use a numeric corporate name through a Business Identification Number (hereinafter “BIN”) rather than a corporate name.

For additional information about business names requirements in Ontario, you can consult our article on choosing the right business name for your Ontario-registered corporation by clicking here.

Shareholder

A shareholder is a legal or natural person who holds a fractional unit of the capital of a corporation. In other words, it is a person who holds at least one share of the share capital of a corporation.

For the shareholder, the acquisition of shares means the purchase of a right or interest in a corporation. The right or interest varies depending on the type of share acquired. 

Director

A director of a corporation is a natural person who:

• has at least 18 years of age,
• is not found to be incapable of managing property by the law or by a court of Canada or another State, and
• has not the status of bankrupt.

A director is responsible for managing the affairs of the corporation. Any director is elected by the shareholders of a corporation at the first meeting of shareholders or at any succeeding annual shareholders’ meeting, and holds office for a maximum of 3 years.

It is the articles and regulations of the corporation that state the number of directors to be elected. Typically, this number depends on the size of the corporation and its holdings. When more than one director is elected, a Board of Directors can be formed. 

Except in rare instances provided by law, a Board of Directors that is composed of:

• 4 or more directors, must be composed of at least 25% Canadian residents,,
• less than 4 directors, must be composed of at least 1 Canadian resident, and
• a sole director who is a Canadian resident. 

Directors have a duty of care, competence and loyalty in favour of the corporation they administer. Thus, every director must act with honesty, in good faith and in the best interests of the corporation. In the performance of their duties, directors have the power to delegate part of their tasks while maintaining a duty of supervision over the delegated tasks. Directors are not liable for the obligations incurred by the corporation. However, they may retain a personal liability that is dual under the OBCA and common law.

Officer 

An officer is a natural person who is responsible for the day-to-day management of the company or for carrying out a specific mandate entrusted to him by the board of directors or a director.

Officers owe a duty of care, competence and loyalty to the corporation for whose benefit they act. Accordingly, all officers must act with integrity, good faith and in the best interests of the corporation. Like directors, officers are not liable for the obligations of the corporation, but retain a personal liability which is dual under the OBCA and common law.

Every corporation must have a minutes book that is made available to the directors, shareholders, and creditors of the corporation. This is not only a legal requirement but also a recommended practice. 

The minute book keeps track of the administrative and legal evolution of your corporation throughout the following documents:

• the articles of incorporation,
• the by-law(s),
• the minutes or written resolutions in lieu of the meetings of the Board of Directors and the shareholders’ meetings,
• the registry of directors, shareholders, officers, etc, 
• the statement of account of the shares issued or transferred,
• certificates of issued shares, and
• shareholder agreements.

When incorporating, you should consider whether you prefer to receive a physical or a digital minutes book. Note that the law does not sets out any specific obligations in that regard as long as the minutes book remains signed and accessible at the corporation’s head office.

The main difference between a physical minute book and a digital minute book lays in the costs incurred by each type of book. A physical minutes book generally costs more than a digital minutes book because of the printing and operating costs. If you want to reduce your incorporation costs, you can opt for a digital minutes book that you can print and organize yourself.

Registering a corporation under the OBCA requires the payment of certain fees. In return, the Director of the MGSC issues a Certificate of incorporation for the corporation and publishes your Articles of incorporation in its registry. 

Once the corporation is incorporated, and within 60 days of the date your corporation commenced business, an Initial report must be filed. There is no additional fee for filing the Initial report if it is filed on time. For any other transaction or the filing of any other application or documents, additional fees may apply. In addition, any change in the information about your corporation requires the filing of a notice of change reflecting the change with the MGCS within 15 days of the change.

Bear in mind that are additional expenses may be incurred for drafting your articles of incorporation and having your minutes book prepared by a lawyer as well as accounting fees for keeping a financial book for your corporation’s financial statements, taxes and tax returns.

The Articles of incorporation refer to the legal basis of your corporation that contain its foundational provisions, particularly:

• the legal name of the corporation,
• the share capital,
• restrictions on the transfer of shares,
• the number of directors,
• restrictions on the line of business,
• the date and time of issue of the certificate of incorporation,
• the founders, and
• any other information permitted by law.

Following the registration of your corporation and the filing of the Articles of incorporation with the MGCS, a Certificate of incorporation is issued. The Certificate of incorporation is a document that certifies the legal compliance of your incorporation.  A date is assigned to the Certificate of incorporation which represents the official date of your incorporation. This date is provided by the articles of incorporation attached to your incorporation or by the MGSC when it certifies that your incorporation is legally valid.

Once your company has been incorporated, certain fixed fees must be paid annually. To operate your business efficiently, you must keep a strict accounting book because every year your corporation must fill out its financial statements and tax returns, and declare its taxes (GST and QST). Tax returns must be filed with the federal and provincial governments within 6 months of the fiscal year-end date. In addition, business taxes must be paid within 3 months following the fiscal year-end date.

These transactions increase the annual costs to be disbursed, and it is recommended to hire a chartered accountant to minimize errors and additional costs as a failure to comply with the abovementioned obligations can result in considerable penalties. For additional information on this subject, we invite you to contact a chartered accountant. If you want to be referred to our partner chartered accountant, please contact us here.

The articles of incorporation provide for one OR more classes of shares.

If the articles of incorporation provide for only one class of shares, it must contain the right to vote at the shareholders’ meetings, the right to dividends when the corporation declares dividends, and the right to the remainder balance. The right to the remainder balance is a right that arises upon the dissolution or liquidation of the corporation, and entitles the shareholder to receive the remaining property of the corporation in proportion to the shares held by the shareholder once all debts of the corporation have been paid.

If the articles of incorporation provide for more than one class of shares, the right to vote, the right to dividends, and the right to the remainder balance must be attributed to at least one class of shares.  

In practice and as a general rule, 2 types of shares are recognized:

• common shares that confer voting rights, dividend rights and residual rights; and 
• preference shares that give priority over common shareholders, such as a priority in the payment of dividends.

Intellectual property refers to the rights in objects created by a person. Thus, intellectual property law provides protections for people who conceive and materialize an idea. For example, one will have a copyright on a painting, a patent on a drug substance or a trademark right on a company logo.

For a corporation, their intellectual property represents an added value because it facilitates access to credit, investment and income. For example, owning a patent on a technology makes it possible to commercialize that technology through licensing or assignments of rights.

Furthermore, protecting the intellectual property minimizes the risk exposure of corporations. When investors conduct due diligence assessments, the exclusive exploitation of intellectual property rights catalyzes a corporation’s return and risk exposure, thereby increasing its financing potential in the eyes of the investor.

The incorporation of your company is an important step in its constitution, reason why validating your incorporation by a lawyer is essential. Although it is possible to register your corporation without the assistance of a lawyer, you must keep in mind that the MGCS does not offer the minutes book nor the articles of incorporation for your corporation. Therefore, you will have to have your company’s articles of incorporation and minutes book drafted by a lawyer: a task that can be laborious and costly. With Lex Start, it is possible to incorporate for an affordable and fixed price with the help of a lawyer without compromising the legal security of your company by clicking here.

A continuance procedure allows a corporation to continue its legal existence under a statute other than its incorporating statute without having to dissolve itself. This procedure is possible for any corporation whose incorporating statute allows for continuance, even in the case of corporations incorporated abroad. There are two processes for corporate continuance, the import and the export process. 

The import process allows a corporation incorporated under the OBCA to continue its existence under the CBCA for example. The import is processed through Corporations Canada and must comply with several conditions provided for within the CBCA. Conversely, exporting allows a corporation incorporated under the CBCA to continue its existence under the OBCA for example. The export is made to the MGCS and must meet several conditions set out in the OBCA.

Any application to import or export requires the filing of a form to that effect as well as the corporation’s incorporating documents. For any question regarding these procedures, our legal professionals will be able to answer you.

The main difference between a not-for-profit organization (hereinafter “NPO”) and a corporation lays in their respective missions. Generally, an NPO aims to facilitate the grouping of persons with the intention of offering the provision of one or more services dedicated to one or more groups of people in order to promote, maintain or develop the common good. 

Despite its mission, an NPO has the capability of holding capital and of generating profits from its capital. In fact, an NPO should generate profits to ensure the continuity of its mission and the achievement of its objectives. However, the profits cannot be distributed amongst its directors, officers or members. 

Note that an NPO must be distinguished from a registered charity; a registered charity must meet several additional legal conditions to benefit from this status.