Incorporating a Business in Ontario
The Complete Guide
Whether you are starting a new business or converting a sole proprietorship, incorporating in Ontario creates a separate legal entity that protects your personal assets and unlocks significant tax advantages. This guide covers federal vs provincial incorporation, share structures, costs, and the steps to get it done right.
What’s in this guide
1. Why Incorporate in Ontario
- You and the business are the same legal entity
- All business debts are your personal debts
- Creditors can pursue your personal assets
- Income taxed at your personal marginal rate
- Corporation is a separate legal person
- Limited liability protects personal assets
- Small business tax rate of 12.2% in Ontario (combined federal/provincial on first $500K)
- Income splitting and tax deferral opportunities
2. Federal vs Provincial Incorporation
| Feature | Ontario (Provincial) | Federal (CBCA) |
|---|---|---|
| Governing law | Ontario Business Corporations Act (OBCA) | Canada Business Corporations Act (CBCA) |
| Name protection | Ontario only | Canada-wide name protection |
| Operating across provinces | Must register as extra-provincial in other provinces | Right to carry on business in every province (still must register) |
| Government filing fee | ~$360 (Service Ontario) | ~$200 (Corporations Canada) |
| Annual filings | Annual return to Ontario | Annual return to Corporations Canada + register in each province of operation |
| Best for | Businesses operating primarily in Ontario | Businesses planning to operate in multiple provinces or wanting Canada-wide name protection |
3. Steps to Incorporate in Ontario
Run a NUANS name search (valid for 90 days) to confirm your proposed name is available. Alternatively, incorporate as a numbered company (e.g., 12345678 Ontario Inc.) and register a business name separately.
The articles set out the corporation's name, registered office address, share structure, number of directors, and any restrictions on business activities or share transfers. Getting the share structure right at this stage is critical.
Submit your articles and pay the filing fee. Online filing through the Ontario Business Registry is now the standard. Processing is typically same-day for online filings.
After incorporation, hold an organizational meeting to appoint directors, adopt by-laws, issue shares, appoint officers, set the fiscal year-end, and pass initial resolutions. Most lawyers handle this as a "minute book" package.
Register for a Business Number with CRA. Open GST/HST, payroll, and corporate tax accounts as needed. You need a BN before you can invoice, hire employees, or file a tax return.
If there is more than one shareholder, this is the single most important document after incorporation. It governs decision-making, profit-sharing, exit rights, and dispute resolution. Do not skip this step.
4. Share Structure: Getting It Right
The share structure you set at incorporation has long-term tax and governance consequences. Common structures include:
| Share Class | Purpose | Typical Rights |
|---|---|---|
| Common shares | Equity participation for founders | Voting rights, dividends at directors' discretion, residual claim on assets |
| Preferred shares (Class A) | Tax planning, income splitting | Fixed dividend rate, no voting, redeemable at a set price |
| Preferred shares (Class B) | Investor or family trust shares | Priority on liquidation, specific dividend rate, may or may not vote |
5. What Incorporation Costs in Ontario
| Item | Typical Cost | Notes |
|---|---|---|
| Government filing fee | $360 (provincial) / $200 (federal) | Payable at time of filing |
| NUANS name search | $15-30 | Required unless incorporating as a numbered company |
| Legal fees (basic incorporation) | $1,000-2,500 | Articles, by-laws, minute book, initial resolutions, share issuance |
| Shareholder agreement | $1,500-4,000+ | Depends on complexity and number of shareholders |
| Business name registration | $60 | If using a name different from the corporate name |
6. Common Mistakes to Avoid
The number one mistake. When partners disagree (and they will), the shareholder agreement is the only document that provides a clear path forward. Without one, disputes go to court.
Issuing all common shares when preferred shares could enable income splitting, tax deferral, or investor-friendly terms. Fixing share structure after the fact is expensive and triggers tax consequences.
Annual resolutions, director elections, and share transfers must be documented. Banks, buyers, and investors will review your minute book before any transaction. Gaps create delays and liability.
The corporate veil that protects you personally can be pierced if you treat corporate funds as personal money. Keep separate bank accounts and document all transactions between you and the corporation.
7. Frequently Asked Questions
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