- A corporation is a separate legal person, which is the point of incorporating.
- Federal and provincial incorporation differ in name protection, filing obligations and cost.
- Limited liability is not absolute, and personal guarantees usually remove it in practice.
- The obligations begin at incorporation: minute book, registers, annual filings and transparency requirements.
What incorporation does
A corporation is a legal person separate from its shareholders. It owns its own property, enters its own contracts, and is liable for its own obligations.
That separation is the source of limited liability: shareholders generally risk what they invested, not their personal assets.
It also enables things a sole proprietorship cannot do easily, issuing shares to investors, transferring ownership, continuing beyond the founder, and certain tax planning.
Federal or Ontario
Both produce a corporation. The differences that matter in practice:
- Name protection. Federal incorporation gives stronger name rights across Canada. Ontario incorporation protects the name within Ontario.
- Operating elsewhere. A federal corporation still has to register extra-provincially in each province where it carries on business. Federal incorporation is not a substitute for provincial registration.
- Filings. Federal corporations file an annual return with Corporations Canada in addition to tax filings. Ontario corporations file through the provincial registry.
- Directors. Federal corporations are subject to Canadian residency requirements for directors. Ontario removed its residency requirement, which is why Ontario incorporation is often preferred where the directors are not Canadian residents.
For a business operating only in Ontario with Ontario directors, provincial incorporation is usually simpler and cheaper. For a business with a national brand, or one intending to operate across provinces, federal incorporation is often worth the additional administration.
Where limited liability does not help
This is the point most new owners misunderstand.
Lenders and landlords routinely require personal guarantees from the owners of small corporations. A guarantee is a direct personal obligation, and the corporation’s separate existence does nothing about it.
Directors are also personally liable for certain obligations regardless of incorporation, including unremitted source deductions and HST, and unpaid wages and vacation pay in defined circumstances.
Directors owe fiduciary duties and a duty of care, and can be liable for breaching them. And a person is always liable for their own wrongful acts; incorporation does not shield an individual who personally commits a tort.
What has to be done immediately
Incorporation is the beginning of the obligations, not the end. Within a short period the corporation should:
- Organise: adopt by-laws, appoint directors and officers, issue shares, and pass the organising resolutions.
- Establish and maintain a minute book with registers of directors, officers, shareholders and transfers.
- Register for the tax accounts it needs, business number, HST where required, payroll if there are employees.
- Register extra-provincially where it carries on business outside its jurisdiction of incorporation.
- Maintain the register of individuals with significant control, which is now required and which carries penalties for non-compliance.
The minute book is not a formality. It is the first thing requested in any financing, sale or audit, and reconstructing years of missing records is expensive and sometimes impossible.
Shares
The share structure decided at incorporation is difficult and costly to change later, so it deserves thought at the outset rather than a default template.
Questions worth resolving: how many classes, and what rights attach to each in terms of voting, dividends and distribution on winding up; whether a holding company should own the shares; and whether a family trust has a role.
Where there is more than one shareholder, a shareholders’ agreement should be put in place at the start, while everyone is aligned, rather than negotiated during the first disagreement.
Common questions
Should I incorporate at all?
It depends on liability exposure, income level, whether outside investment is planned, and tax circumstances. It is not automatically right for every business.
Can I incorporate myself online?
Yes, and the filing itself is straightforward. The problems usually arise in what follows, share structure, organising the corporation, and maintaining records.
Does incorporating protect my personal assets?
Generally, subject to personal guarantees, statutory director liabilities, and liability for your own wrongful acts. In small business practice those exceptions are common.
What is a register of individuals with significant control?
A record of individuals who own or control a significant proportion of shares, or who otherwise exercise significant influence. Maintaining it is a legal obligation with penalties attached.
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