What is Business Incorporation?
Business incorporation is simply a corporation-forming process. Creating a legal entity distinct from its owner. When a business is incorporated, it becomes an independent legal entity, different from the people who made it up or created it. The business owns its asset like its customers, property, income, and products. At that point, it is also responsible for certain KPIs like salaries, rent, income taxes, and consumption taxes.
When to Incorporate Your Business?
When you venture into business, a time will come when you have to incorporate your business. Before you incorporate your business, there are certain things you should know because there is a process to follow.
The process of incorporating a business can be daunting. Specific details need to be considered. To make it easier, most business owners hire a lawyer to help with this process. Hiring a lawyer is mostly expensive; the good part is that it is not the only option. You can incorporate a business in Ontario without a lawyer.
What to Know
- The legal status of your business.
- Choose the name of your business.
- Create constitutive documents.
Legal Status of Your Business: At this point, you determine whether your business would be registered at the federal or provincial level. For those in Ontario, at this point, you determine to incorporate your business in Ontario. When you incorporate your business provincially, your business rights are restricted only within the province where your business is incorporated.
Choose the Name of Your Business: Here you should decide what name to call your business. It may not look like a difficult task, but ensure you have plans A, B & C. You may want to incorporate a business in Ontario with a name someone has used to incorporate their business. Having a backup plan is important. When searching for a business name, remember you can also use numerical designation.
Create Constitutive Documents (Articles): In creating a constitutive document, you also define the status of your business. These documents are the foundational documents that precede the organization of the business if any. Typically, these documents contain the date you founded the business, and your business office, directors, and shareholders.
You can design this in a way that suits your business needs. (Structure, shares, number of directors etc.) The company’s internal organization is also important. Create your business organogram or a book where you can document the leadership structure of your business. Every business must have a governing body. You also document the history of your business in this section.
When you decide to incorporate your business, a few questions come to mind; here we will help you answer those questions.
Why Incorporate Your Business?
You might decide not to incorporate your business, but most times it is beneficial for you to incorporate your business. For-profit and not-for-profit are the two types of incorporation. Most businesses fall in the for-profit category.
Here are a few things you should know before you incorporate your business.
If you act as a sole proprietor and do not incorporate your business, your business is not a legal entity. Meaning it cannot be responsible for debts or independent litigation. Everything will fall on your shoulder. All your assets can be under threat.
But an incorporated business is a legal entity, it is distinct from the owner or founder. In case of debt or other litigations, the owner is protected, and the business can be held accountable.
When you incorporate your business, you pay a corporate tax rate. Most of the time, the corporate tax rate is lower than personal income tax rates.
But if your business is not incorporated, you pay personal tax based on your income. The more your income, the more tax you pay. The best part is corporate tax covers both travel and health insurance cost.
Can you Incorporate Your Business Yourself?
Well, yes you can file for incorporation yourself online, by email, or in person. You can save yourself the stress by hiring a lawyer. But if you want to save money, then you must be ready to invest your time.
You can compare both and make your decision; the cost of hiring a lawyer in comparison to the time and work you will have to do may not be too hefty.
Incorporating a Business in Ontario
When you incorporate a business in Ontario, your business rights cannot go beyond the province of Ontario. Only federal corporation allows you to exercise your business right federally.
Ontario Business Corporations Act (OBCA) regulates every incorporated business in Ontario. You must file your articles of incorporation to (OBCA). Your article must contain your business name, office location, shareholders, effective date, and the named directors. You must file them all as a form.
How much does it Cost for you to Incorporate in Ontario?
There is no definite fixed cost for incorporating a business in Ontario. Prices vary but most commonly, it costs about $300 CAD to incorporate your business and a further $60 CAD to register your business name.
What to do After Incorporating Your Business?
You must keep up to date if you want to maintain your incorporation status. Incorporating your business is not the bus stop. There are certain legal requirements for you to abide by. To maintain your incorporation status in Ontario and federally. You must provide these documents frequently, A minute book and share records, Company updates, and Annual returns and resolutions.