So, you decided to incorporate your business idea.
Congratulations! This is the important first step to get your product out into the world, collect payments, and get your company recognized as a legitimate entity.
Now the question you might be asking yourself is, how to incorporate my business.
As a founder and a serial entrepreneur myself, I’ve had a fair share of previous experiences incorporating my businesses. I’d love to share with you what I’ve learned doing it, answer questions that come up during the incorporation, and highlight the things to consider while incorporating. Let’s dive into it.
Pick A Name For Your Company
As an entrepreneur, I know for a fact that choosing a name to describe a product or service is one of the first things that pop into your mind. The imagination takes over, and before you know it, you’re contemplating different stylish words that describe the product, the process, or better yet - the feeling you want your customers to have when they are using it.
If you’ve got a name - great! If not - you can always pick one for your company, or choose a more old-school numbered corporation to avoid going through a name registration process.
When choosing a numbered corporation, keep in mind that a company name is not necessarily a brand name. You can register your corp as a 123456789 Canada Inc for tax purposes, and still use a different brand name to describe your company and your product for marketing purposes.
Yet, not all of us want to stick a random number on a share certificate we are certainly planning to hang in our home office, reminding us of who’s the boss. For that reason, you can choose to name your company while incorporating.
The thing to keep in mind is that different companies may use the same word or a phrase during name registration, to describe what they do, as long as they don’t directly compete with each other. For example, it’s quite possible for a “Basil Mortgage Corp.” to exist alongside “Basil Sporting Goods Inc.”. Both will get approved. You may have trouble incorporating “Basil Inc.” thought - especially if another firm with a similar name already exists.
For that reason, Corporations Canada encourages entrepreneurs to use a combination of a brand element and a descriptive element when registering a corporate entity. For example, the word “Airdyme” could be a brand for lightweight running shoes, or could be a technology brand.
Add a descriptive element to it to specify. “Airdyme Technologies”. And then top it off with a legal element, like “Inc.” or “Corp.” to make it into a corporation called “Airdyme Technologies Inc.”.
That last part - the legal element - is just a historical requirement to be included with the corporation’s name during the registration.
Choose Between Provincial And Federal Incorporation
When incorporating a business, many entrepreneurs find themselves asking about the difference between federal and provincial incorporation.
Both types of incorporation would allow you to get up-and-running, selling your goods and services both nationally and internationally.
The difference lies in name protection. When registering your business name and conducting a name search, you need to ensure that no other company operates under an identical or similar name. Once approved, you get the right to operate under the chosen name - and no company after you would be able to operate under that same name.
When you incorporate federally, that name registration applies to your home province (where your business is located), as well as any other province or territory where you conduct business. For example, incorporating your Ontario tech startup as “Snazzy Technologies Ltd.” would also allow you to use that same name when operating in British Columbia or Nova Scotia.
However, if you incorporate using provincial registration, you would only get to use your business name in that province, requiring separate name registration in each province you are planning to operate in.
In reality, Federal Incorporation might be a better fit for most companies. Not only does it eliminate the headache of having to register in each province, it also eliminates the cost associated with each provincial registration, thus making it a cheaper option as well.
Submit Articles of Incorporation
The next step in formalizing your company registration is submitting the articles of incorporation. Several pieces of basic information will be included with your initial articles of incorporation filing:
- Name of your company described earlier
- Province or Territory where your business is located
- Minimum and maximum number of directors permitted
There is also more advanced information that needs to be included.
Classes Of Shares
As a founding member, you get to decide on the class(es) of shares, rights assigned to each class, and the maximum amount of shares authorized to be issued throughout the lifespan of your corporation.
Shares for the most part are used to assign voting control, ownership of assets, and entitlement to receive dividends to the shareholders of the company.
You may choose to issue one class of shares to contain all three, or you could choose to separate those rights into separate classes of shares - voting and non-voting, for example.
It’s important to anticipate any activities that would jeopardize your business down the road, and include restrictions to protect your business from a legal standpoint.
Some of the most popular restrictions are:
- Restrictions on Transfer of Shares - the terms of transferring shares from one shareholder to another within a private company
- Restrictions to Borrow Against Company Shares - to prevent shareholders from taking out a personal loan, using shares as a collateral
- Restrictions on Business Activities - to limit the activities of a corporation that are deemed harmful or undesirable.
When incorporating with coSquare, we will handle all aspects of company registration, share issuance, and other restrictions to ensure compliance with best practices.
Appoint Company Directors
Once Articles on Incorporation are created, the next step is to appoint company directors.
Directors are company executives responsible for managing the corporation. Together all directors comprise a board of directors - the term you may have heard before.
Initially, you can include yourself and all your co-founders that you’d like to have a board seat (and thus a say over board-level decisions, such as appointing the CEO and creating a C-level compensation structure).
In the future, as your company grows, attracts investors, and brings on new executives, your board composition may change. It’s quite common for lead investors (such as a Partner of a VC firm) to become a Director in the corporation they invest in.
Keep in mind: those who control the board of directors, control the corporation, and will be able to hire and fire executives of the business, including the CEO.
Initially, at least one Director must be a Canadian Citizen or a Permanent Resident. You will need to provide other details, such as the address of the head office and each director’s address.
Get Approval And Create A Minute Book
After your application has been reviewed and approved, you should receive an email from the Corporation Canada, with some key information regarding your now Incorporated Business.
For example, it would contain an 8-digit Corporation Number used as a unique identifier for all your business filings, a Corporation Key to authorize any changes to your business registration (such as adding or removing directors, change of address, etc), and your Filing Period - used to describe the 2-month window then annual returns and director resolutions need to be submitted.
You would also get a 9-digit Business Number shortly, which you can use to apply for GST / HST account (required to withhold Harmonized Sales Tax), and a Payroll Deductions account.
However, simply getting your Business Number is not enough to finalize your incorporation from a legal standpoint. You would also need to create a compliant Minute Book that contains all the details, such as issuing shares, appointing directors, or approving corporate by-laws.
Why is Minute Book important
Corporate Minute Book is the first document any prospective investor, acquirer, or auditor will request. For the most part, businesses that incorporate make a mistake of never creating a minute book, or not keeping it up-to-date with all the changes that the company goes through.
At the very minimum, Minute Book should include:
- Corporate Articles of Incorporation
- Corporate By-Laws governing company decision making
- List of directors appointed in the business
- Annual returns filed with the government on behalf of the corporation
- List of shareholders owning shares in the corporation
When you file for incorporation, you don’t automatically get all these steps completed for you. Instead, you’re responsible for completing them yourself.
When incorporating with coSquare, you get all these documents, as well as the compliant Minute Book, created for your business.
And that’s it! You’re in business! Raise that glass of organic kombucha up high, pat yourself on the shoulder, and get ready for an exciting journey ahead. Upwards and onwards! 🙌