Here’s what you need to know about how to incorporate a business in Ontario.
Why Incorporate a Business in Ontario?
The main reason for incorporating a business in Ontario is to unlock a wide range of options for managing your tax and personal liabilities.
In other words, there are tax benefits to incorporating a business, as well as the benefit of limited liability (i.e. you and others involved in the business will not be personally liable in the case of lawsuits).
This applies both to the company itself and to its directors and employees.
Pros and Cons of Incorporation Versus Other Types of Business Ownership
The main forms of business ownership in Ontario are:
Sole proprietorships and partnerships operate along very similar lines. In both cases, the owners are the business and the business is the owners. Any assets bought for the business are held by the owners themselves and similarly, any liabilities generated by the business are the personal responsibility of the owners. If the business generates a profit, this is the property of the owners and they are personally responsible for paying the tax on it.
The main advantage of sole proprietorships and partnerships is that they are both very simple business structures. This means that they require minimal expense and paperwork to set up. What’s more, in the right situations, they can work very well. For example, if an individual just wants a straightforward route to earn money from their skills, then a sole proprietorship may well be the way to go.
If an individual wants to team up with other people to earn money from their skills, then a partnership could also be the way to go. That said, partnerships do tend to require both a solid legal (and decision-making framework) and a high degree of trust and cooperation.
It’s also very important to note that both sole proprietors and partners are personally liable for any debts incurred by the business. This means that both sole proprietors and partners must take steps to protect themselves against the potential consequences of business risks.
Probably the best-known benefit of incorporation is that owners of incorporated business generally cannot be held personally liable for anything the business does. This is because the business is considered a separate legal entity and hence responsible for its own actions. Be aware, however, that an exception can be made if you have given a personal guarantee or been negligent.
Incorporation also provides a straightforward means for the business to keep going, even after the original founders depart, for whatever reason. In fact, incorporation opens up a number of possibilities for different ownership structures and different mechanisms for paying directors and employees.
Last but definitely not least, incorporation opens the door to a wide range of financing options, investment and potentially to public trading further down the line.
The main disadvantage of incorporating a business in Ontario is the cost and hassle of going through the incorporation process. In particular, you will be required to formulate a set of bylaws for the company’s operation. This can be a challenging exercise, but it can also be a rewarding one because it can lead to real insights into how your business works and force you to think clearly about how you want it to go into the future.
How Much Does It Cost to Incorporate a Business in Ontario?
At present, the incorporation fee itself is CA$360. If you file your Articles of Incorporation electronically, then you will need to use a third-party processing company. This will charge an additional fee for its services. You will also need to think about the cost of any legal and/or financial advice you need to set up your company. Obviously, the cost of this is highly variable.
How long does it take to incorporate a business in Ontario?
If you are registering a numbered corporation, then the incorporation itself should be completed in one or two business days. If you are registering a named corporation, then the incorporation itself should be completed in three or four business days. Again, you will need to add on the time it takes to get any necessary legal and/or financial advice. Again, this will be highly variable.
Forms to incorporate a business in Ontario
If you want to incorporate a business in Ontario, you will need to complete the following forms.
Steps to Incorporate a Business in Ontario
If you want to incorporate a business in Ontario, you will need to complete the following forms.
- 1The first step in the incorporation process is choosing a name for your company and registering it. In principle, you can use a number. In practice, there are many advantages to using a traditional “word-based” name (which can also contain numbers). These advantages all tend to hinge on the fact that a word name can give a company a unique and memorable identity.
Although this is not part of the incorporation process, now could be an excellent time to look at any areas where your name could be used and see what steps you need to take to protect it. For example, you’ll almost certainly want your company to have its own website. That means you’ll need a domain. You’ll, therefore, need to check what domains are available.
Once you’ve determined what domains you can have, it’s highly advisable to take a look at the main social media platforms and see what domain names are also available as social media handles. Even if you’ve no intention of using social media, it’s preferable to claim the handles. This is partly in case you change your mind later and partly to stop other people from impersonating your company.
It is generally very affordable to register a domain and usually costs nothing to register social media handles. That being so, you might want just to go ahead and claim them and then complete your NUANS search. If you do discover that your choice of name is taken, then you’ve only lost a little bit of money. If you discover it’s available then you’ve ensured that you have the associated domain and social media handles.
You might also want to think about trademarks, logos and such like and arrange the appropriate protection for them. Basically, you want to ensure that they are protected before you commit to them.
- 2With your name chosen, your next step is to complete the documentation. The key document is the Articles of Incorporation. It is impossible to overstate how important this is. In simple terms, this is the document that will set out just how your company is to be run.
Even if you are a trained lawyer, it’s highly advisable to get independent advice from experts in this area. In short, take the time to get your Articles of Incorporation absolutely perfect from the outset. It will save a lot of time, hassle and money later.
- 3Once you have your documentation ready, it’s time to submit the documentation. In principle, you can go to a government office to deliver it in person. In practice, you’ll probably want to submit it electronically. As previously mentioned, at present, you need to use a third-party processing company to do this. They will charge a fee for their services. Many people, however, consider the extra fee a reasonable price for the greater convenience it offers.
Assuming you're incorporating as a named company (as opposed to a numbered one), it will generally take about three or four business days for the Ontario provincial government to process your application. When they have done so, your company will be provided with a Business Identification Number (BIN) and a certificate of incorporation. At that point, your company is officially official. It can only be dissolved by a formal process.
Technically, this is the end of the incorporation process. It is, however, strongly recommended to push on a little further and undertake a bit more legal housekeeping. As an incorporated business, your company can have directors, officers and shareholders.
Each of these roles will have different levels of responsibility, different levels of executive authority and different expectations in terms of reward. Now is a good time to make sure that all roles are clearly and explicitly defined in writing. Again, you want to resolve any conflicts of opinion/expectation at an early stage to prevent the possibility of them becoming a serious issue later on.
Finally, this is also a good time to think about the practicalities surrounding ownership of incorporated companies. The key point to understand is that at some point the original owners are going to move on. This may be to go onto pastures new in this world or it may be because of death. In either case, you need mechanisms in place to deal with this reality.
First of all, you should do everything you legally can to avoid letting the business become too dependent on a small number of people. Where people are particularly important to the business, their contracts should reflect that fact. In particular, they should be required to give appropriate notice before leaving.
Notwithstanding this, you should do everything possible to ensure that all knowledge is documented to facilitate its eventual transfer. This includes business processes and any business-related contact details they hold. In fact, ideally, business contacts should be introduced to a person’s replacement before they leave to try to maintain the continuity of the business relationship.
Finally, you will need to think about what steps will need to be taken when a shareholder dies. Unless there is a legally-binding agreement to the contrary, they can leave their share of the business to whomsoever they please. What’s more, if they die without a will, the government will decide who inherits their estate. In fact, the government could end up owning their estate. Admittedly, this is very unlikely but it is possible.
All of this means that a share of the company, possibly a substantial one, even a controlling one, could end up in the hands of someone who is not really suited to managing the business. For this reason, it can be very much advisable to have a legally-binding agreement that the company will be given “first refusal” if the shareholder wishes to sell their shares and that they will also have the option to buy them back when the shareholder dies.
Obviously, the company will only be in a position to do either if it has funds available. One way to make sure this is the case is to take out appropriate insurance. These insurance policies are very commonplace and their prices should be within the reach of even the smallest incorporated business.
Checklist of Steps for Incorporating a Business in Ontario
- 1Choose and register your company name
- 2Complete and submit the documentation
- 3Obtain the company's Business Identification Number (BIN) and certificate of incorporation
- 4Finalize the company's internal structure
Maurice (Moe) Muise learned the ins-and-outs of government while an employee of the Government of Canada in Ottawa for 10 years. His current focus is helping small businesses in Ontario to identify and maximize government grants to grow their business.
Click here to learn more about Moe’s background and how he can help your business.