In this Legal Guide, Toronto business and franchise lawyer, Sukhi Hansra, of Hansra Law, discusses the key steps on how to incorporate in Ontario or Canada.
In previous Legal Guides we covered Different Types of Business Structures in Canada and explored the Advantages and Disadvantages of Incorporation.
Should you wish to incorporate your business in the near future, this Legal Guide provides a detailed guide on the process for incorporation.
1. Conduct a Name Search
You will first have to pay for a Newly Upgraded Automated Name Search (NUANS) report in order to ensure that your business name is unique. Please note that a NUANS Report also captures registered trade-marks and trade-mark applications containing potentially confusing names.
A corporate name must be distinctive (not shared by another business), descriptive of the services offered by the corporation, and must contain a legal element such as “Limited” or “Incorporated” (or the corresponding abbreviations “Ltd.,” “Inc.,” or “Corp.”). Private companies can perform this search for approximately $25-$50 and you can find them online or in the yellow pages of the phone book.
It is often a good idea to have back-up name choices in case a name is already taken or rejected. If are limited in time and need the corporation immediately (because, for instance, the corporation will be used to buy a new business), the corporation can first be incorporated under a government assigned number name, which can be changed to a name of your choosing at a later date.
2. Submit Your Articles of Incorporation and Any Other Required Documents
You will next have to file Articles of Incorporation (Form 1 of the OBCA) with the Ministry of Government and Consumer Services and pay the required filing fee. The Articles may be filed online through the Ministry of Government and Consumer Services website or through mail.
The Articles deal with matters such as:
- Name of the corporation
- Location of the registered office
- Number of directors
- Name of directors
- Restrictions on business activities
- Rights and restrictions of share classes
- Restrictions on the transfer of shares
- Incorporators
3. Draft Organizational Resolutions of Directors and Shareholders
After filing the Articles of Incorporation, you will receive a Certificate of Incorporation certifying that your corporation is now incorporated. Immediately after the Certificate of Incorporation is received, the initial directors and shareholders of the corporation must hold a meeting or pass resolutions in writing to properly set up the corporation.
Typical areas covered by the Organizational Resolutions include:
- Initial issuance of shares.
- Making and approval of any by-laws.
- Appointment of officers.
- Approval of Corporate banking matters.
- Approval of a corporate seal.
- Setting the corporation’s financial year end.
4. Enact Corporate By-Laws (Optional)
By-laws are secondary to the Articles of Incorporation and are primarily used to set forth the governance rules of a corporation. The board of directors has the authority to make, amend, or repeal by-laws, although any approval or change to the by-laws must be confirmed by the shareholders of the corporation at the next meeting of shareholders.
The By-laws are also typically used to override some of the basic minimum requirements set out in the CBCA or the OBCA, such as the required timing for giving notice to directors and shareholders before a meeting.
Other areas that are generally covered by the by-laws include:
- The procedures for the meetings of shareholders (including record date, notice, quorum and voting).
- The procedures for calling and holding meetings of the board (including notice, quorum and casting or tie-breaker votes).
- Appointment and duties of the officers and committees of the corporation.
- Issuance of shares.
5. Arrange for a Shareholder Agreement (Optional)
Although not mandatory, shareholders sometimes enter into agreements with each other at the time of incorporation to set forth certain rights and obligations, such as board representation, voting approval thresholds and share transfer restrictions. Shareholder Agreements often help protect the shareholders of the corporation and can set out how the shareholders will manage potentially contentious situations among themselves.
A Unanimous Shareholder Agreement is a written agreement among all the shareholders that transfers at least some powers of the board of directors to the shareholders.
A Unanimous Shareholder Agreement can include:
- Share transfer restrictions.
- Pre-emptive rights.
- Provisions on board representation.
- Super-majority shareholder protections.
- Contractual provisions to protect shareholders, such as a right of first refusal (ROFR) or right of first offer (ROFO), drag-along rights and tag-along rights.
6. Obtain a Corporate Minute Book
A corporate minute book is typically a loose-leaf ring binder that acts as a place to store important corporate documents, although it may be possible to have a digital corporate minute book as well.
Under the OBCA and the CBCA, you must keep a record of company meetings and documents related to the corporation in a minute book. This must be stored in the registered office of the corporation. Please note that you are not required to have office space. Instead, your “registered office” can be whichever address you provide as the “registered address”.
Required documents in a minute book include:
- Registration documents,
- Register of directors.
- Register of officers.
- Share registers.
- Share certificates.
- By-laws.
- Minutes and resolutions of the board of directors and shareholders.
- Register of individuals with significant control.
- Financial statements.
The design of minute books varies. Some may be leather bound or have different options for the inscription of the corporation’s name. Usually, the minute book comes with a corporate seal, sample share certificates, securities register, register of transfers and registers of directors and officers. You can replace any of the included forms with your own. You can order a physical minute book from various sources online.
7. Establishment of a Tax and Business Bank Accounts
Following incorporation, you will also need to set up banking arrangements for your corporation that are independent from your personal banking accounts, a business number (for income tax, payroll remittance, harmonized sales tax and goods and services tax), and any licenses or permits that the corporation may need to carry on its business (for example, insurance brokerage or food service).
