What Is Incorporation and How To Do It

Incorporating a business creates a separate legal entity called a corporation or company. The process of incorporation and the legal aspects of how a business is governed is set out in the Business Corporations Act.

A corporation has all the powers of a person and is essentially independent of its shareholders, although certain exceptions may apply. It can acquire assets, go into debt, enter into contracts, sue, or be sued.

The Different Types of Corporations

The most common type of corporation is a limited corporation. In this business structure, the shareholders’ liability is limited to their investments or commitments in the business.

There are also unlimited liability corporations where the shareholders are liable if the corporation declares bankruptcy. Shareholders can receive some tax benefits for assuming the risk.

Benefit companies are for-profit corporations that promote public benefits for communities, organizations, or the environment.

Advantages and Disadvantages of Incorporating

The Advantages of Incorporating A Business

A major advantage to incorporating a business is that the corporation is separate and distinct from the owners. As a legal entity, a corporation acquires the legal powers of a separate person.

  • There are several advantages to incorporation and this list is not exhaustive:
    The liability of a shareholder is limited;
  • Corporations generally benefit from lower tax rates;
  • It is easier to raise capital for corporations than for other business structures; and,
  • Corporations have a continuous existence. This means that they live on until the corporation, for example, winds up, amalgamates, or goes bankrupt.

The Disadvantages of Incorporating A Business

However, there are also some disadvantages to consider:

  • Corporations are more closely regulated than sole proprietorships and partnerships;
  • Losses in a corporation cannot be claimed by shareholders and can only be offset against earnings in the corporation; and,
  • A corporation is more complex and costly to set up and maintain than a sole proprietorship or partnership.

How To Set Up An Incorporation

The first step in incorporating in BC involves registering your business with the province, starting with a business name request. Companies must have their name approved to confirm that it does not conflict with an existing corporation. The name must include a corporate designation (Inc., Ltd, ULC, CCC). However, if you plan to use the incorporation number as the company’s name, you will not need to make a name request.

Once the name request is processed, a name reservation number will be issued, which you will use to incorporate your business. Each name reservation has an expiration of 56 days. So, you must complete the incorporation within that time. Otherwise, you will have to submit another name request, and pay the fee again.

Next, you will have to formulate the articles for the company. The articles are the rules for the company, shareholders, directors and officers, which become part of the company’s formal records. This step establishes the structure of your corporation.

You must also prepare an incorporation agreement. Each person (or incorporator) forming the company needs to sign. Incorporators often become the shareholders and directors once the company is incorporated. The agreement also becomes part of the company’s formal records.

Finally, every incorporated business must establish a registered office address and a first board of directors. The registered office is where you must keep your corporate records and where official documents will be served on the corporation.

Each director will need to meet the eligibility criteria. When you incorporate, you must disclose each director’s name, address, and indicate whether they are a resident Canadian.

Once the above is all set, you can apply to incorporate – click submit and pay the fee!

Most companies will do so on the provincial government’s Corporate Online website.

Questions About Incorporating?

The decision to incorporate depends on the owner’s needs and business objectives. We recommend seeking advice from a chartered accountant and lawyer before setting up your business, as incorporating is complex. So, it is best to get legal advice to guarantee all requirements have been met.

If you are thinking of incorporating, get in touch with our Corporate team!

We are happy to answer any questions!

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