A solid legal foundation is key to the operation and growth of any new business. Typically, the very first step to launching a new business is to incorporate, which creates a new legal entity and is the structure through which your business will operate. There are many benefits to incorporation, including limited liability, but it is also the most flexible business structure, allowing you to divide and share ownership and control of the business among founders, investors, employees and others.
Corporations are legal entities that exist separately from their owners (shareholders). For legal purposes, incorporating is like creating a new person. Corporations have their own bank accounts, their own assets and obligations, and file their own tax returns. Since shareholders do not have personal liability for the obligations of the corporation, it is always recommended that any business operate through a corporation to protect its owners’ personal assets.
Ontario vs Federal Incorporation
In Ontario, incorporation can be done under provincial law (an Ontario incorporation) or under federal law (a Canada incorporation). There are very few differences between the two, but some of the most important issues to consider when choosing are:
- Canada corporations guarantee that your exact corporate name cannot be used by any other corporation in Canada. Ontario corporations only guarantee that your exact corporate name cannot be used by any other corporation in Ontario.
- Canada corporations require that your corporate name cannot be in use anywhere in Canada, which means it can be harder to find available names.
- The name of a Canada corporation must have a “distinctive” and “descriptive” element. For example, “Bob’s Burgers Inc.” has a distinctive element (“Bob”) and a descriptive element (“Burgers”).
- Ontario corporations have higher initial filing fees (which is why we charge more for Ontario corporations).
- Canada corporations require 25% of the board of directors to be resident Canadians (with a minimum of 1 resident Canadian for boards of 4 or fewer directors). As of July, 2021, Ontario corporations do not require any directors to be resident Canadian, and can therefore be owned and controlled by non-residents.