How to Incorporate a Business in Ontario: A Step-By-Step Guide (2022)

If you’re looking to make your business a legal (not personal) entity, incorporating it is the best thing to do. Unlike a sole proprietorship, incorporation limits your liability and offers many growth opportunities.

However, incorporating a business in Ontario can be challenging due to the level of requirements and rigorous process.

While you can hire a lawyer to help you do the hard job, it can be costly to do so. But even if you’re using a lawyer or doing it yourself, it’s essential to understand what it takes to incorporate a business in Ontario.

This helps you avoid popular incorporation mistakes and save you cost in the long run.

Here I work you through the step-by-step processes of incorporating a business in Canada without breaking the bank.

What is Incorporation?

Incorporation is the process of converting a business into a corporate entity according to legal guidelines.

That said, a corporation is the result of incorporation. Unlike a sole proprietorship, a corporation shares the business ownership proportionally among shareholders.

Through a corporation, you can raise a large sum of money to run your business and share liabilities and profits among investors. This is a win-win case since there’s no personal liability.

Accordingly, incorporating your businesses protects you against risk and offers many growth opportunities.

So should you incorporate your business? Why not?

Advantages of Incorporating a Business in Ontario

Like other types of business structures, incorporation has many advantages that make it worthwhile. The following are the major advantages of incorporating your business in Ontario.

1. Limited Liability

Incorporating your business limits your liability as an individual. This is because your business is considered a corporate entity subject to all liabilities.

As a result, your personal assets will not be exposed in the event of litigation or debt on your business.

2. Tax Advantages

Incorporating your business protects you against a high tax bracket when your business grows.

The rate of corporate income tax is often lower than the sole proprietorship tax rate. In some cases, the corporate tax rate also protects your travel and health insurance costs.

3. Easy Fund Access

You can apply for loans and grants designed for corporate companies when you incorporate your business.

In addition to offering various classes of shares with preference as to redemptions, dividends, and convertibility, a corporation can use bonds or debentures as a funding mechanism.

Disadvantages of Incorporating a Business in Ontario

While incorporating a business can be beneficial, it has some drawbacks that you should be aware of.

Here are the major disadvantages of incorporating a business in Ontario.

1. Incorporation Costs

The cost of incorporating a business is more than the cost of starting other businesses. Due to the rigorous registration process, you may have to seek the help of a lawyer to incorporate your business.

However, hiring a lawyer to incorporate your business can be costly than doing it yourself online, by email, or in person.

2. Recurring Costs

The ongoing costs of a corporation are more than the recurring costs of a sole proprietorship or other businesses.

For example, the annual corporate tax return must be filed by an accountant. There are also legal fees to pay annually.

3. Complexity

Finally, incorporation is more complex than sole proprietorship and other business structures. This ranges from the registration process to running the business.

For example, you may seek third-party help to incorporate your business successfully if you don’t know how to do so. On average, lawyers charge $1500 for such service.

Furthermore, in order to maintain good standing with the authorities, your corporation must file legal, and tax returns each year. This is a time-consuming process that requires constant attention from all shareholders.

Requirements for Incorporating a Business in Ontario

Each province has its different requirements for incorporating a business in Canada. Here are the requirements for incorporating a business in Ontario according to the Ontario Business Corporations Act (OBCA):

• Name of the business
• Address of the business
• Description of the business activities
• Less than 90 days NUANS report
• Details of each director (name and address)
• Details of each shareholder (name and address)
• Other requirements by the Ontario Business Corporations Act (OBCA):

Note:

A minimum of one director and shareholder is required. Both positions can be held by one person.

How to Incorporate a Business in Ontario

The Ontario Business Corporations Act (OBCA) regulates business incorporation in the province, providing registration guidelines.

Based on the OBCA, the following are the processes of incorporating a business in Ontario:

Step 1: Choose a Corporate Name

The first step of incorporating a business in Ontario is to choose a corporate name. It’s essential to choose a corporate name that reflects your company and appeals to your target customers.

As a result, the name of your business should be memorable and provide information about what your business offers. Choosing a unique name allows you to stand out from your competition.

Furthermore, it is essential that the name of your company does not describe your products or services in a misleading or confusing manner.

That said, ensure that the name you choose has not been taken by another company.

In order to be absolutely certain that your name is not already taken, you should perform a thorough NUANS search. NUANS search is compulsory when incorporating your business in Ontario.

Step 2: Order Corporate Registered Address

An Ontario registered address is required for every corporation in the province. To keep government correspondence away from everyday corporate correspondence, corporations often use a separate corporate registered address.

In fact, maintaining privacy is even more crucial if you have a home business. You can order a corporate registered address through platforms such as Business Development Centre.

Step 3: File Articles of Incorporation

Articles of Incorporation is a document that you must complete to incorporate your business in Ontario. The document will be submitted to a particular government department after completing it.

However, you will not receive the Article of Incorporation document until your application is approved.

That said, the Article of Incorporation confirms your legal registration of incorporation with the Ontario government.

Step 4: File Initial Return

After incorporation, you must file an Initial Return within 60 days. The filing can be done during the incorporation process or separately.

However, you will save more on service fees if you file your Initial Return during the Incorporation.

Step 5: Apply for Tax Accounts

The application form allows you to request one or all of the following tax accounts through the appropriate check-box.

• Payroll: You must register for a Payroll account if you have employees.
• HST: You must register for HST if the annual taxable sales of your business are over $30,000.
• Import/Export: This account would be of great assistance if you plan to trade internationally.
• WSIB: If you plan to hire employees, you must have this account. Even if you don’t have any employees, it is mandatory to have this account if your company is construction-based.

Step 6: Register a Corporate Trade Name (Optional)

A trade name refers to the name you run your business instead of the legal name of your registered corporation.

Thus, it’s mandatory to register a corporate trade name if you want to run your business with a different name instead of the legal name of your corporation.

Incorporating in a Business in Canada

When incorporating your business in Ontario, your rights are only provincial-based. So if you do not incorporate federally, you cannot take advantage of the same benefits in all of Canada.

The advantages of federal incorporation are similar to those of provincial. But incorporating federally and provincially helps protect your company name nationwide.

That said, you should consider incorporating your business federally after provincial incorporation. The following the steps of incorporating your business federally in Canada:

• Obtain your articles of incorporation.
• Contact the Canada Revenue Agency for a Corporation income tax account and federal business number.
• If you plan to do business elsewhere in Canada, register as an extraprovincial or extraterritorial corporation.
• Request for all the licenses and permits your corporation may need.

During the incorporation, you may obtain your provincial registrations, tax accounts, and a business number.

However, before you decide whether to incorporate federally or provincially/territorially, you might want to read this comparison between federal incorporation and provincial/territorial incorporation.

Should You Incorporate Your Business Yourself?

People that want to make a cost-effective decision often ask this question. Since every individual situation is different, the answer to this question also differs.

There are three major options available when it comes to incorporating a business in Ontario or Canada. These are:

• Incorporating online through one of the Ministry of Government and Consumer Services’ licensed Service Providers.
• File in person at any Registry/ServiceOntario offices in Ontario or the Toronto office
• Email your incorporation application to the Central Production and Verification Services Branch, 393 University Avenue, Suite 200, Toronto, Ontario M5G 2M2.

Frankly speaking, it can be challenging to incorporate your business in Ontario yourself considering the rigorous application process. It is possible you get stuck when in the process of doing it yourself.

However, a lawyer can do the hard job for you, but you should be prepared to spend an average of $1,500.

In order to make a cost-effective decision, I recommend incorporating your business through an online service provider, such as Ownr.

Besides the low fees, Ownr offers $300 cashback on all its plans. In the end, you may not feel the impact of the cost of incorporating your business with it.

While Ownr could be your cost-effective solution, it’s essential to use the option that suits your situation.

But if you want to use Ownr to incorporate your business in Ontario, I recommend you read this Ownr Review before starting.

Summary on How to Incorporate a Business in Ontario

Incorporation helps you convert your business to a corporate entity, limiting your liability as an individual.

When you incorporate your business, you share your business risks and profits proportionally with all shareholders.

As a result, you stand a chance to access loans and grants that are specifically designed for incorporated companies.

However, it’s essential to know the drawbacks of incorporation before venturing into it. But even if you’re comfortable with it, you shouldn’t rush into incorporating your business without following due process.

That said, here’s a summary of the processes of incorporating a business in Ontario:

• Choose a Corporate Name
• Order Corporate Registered Address
• File Articles of Incorporation
• File Initial Return
• Apply for Tax Accounts
• Register a Corporate Trade Name (Optional)

But if you want to take advantage of federal benefits of a corporation, it’s essential you register your incorporation federally. The following are the processes of incorporating a business federally in Canada:

• Obtain your articles of incorporation.
• Contact the Canada Revenue Agency for a Corporation income tax account and federal business number.
• If you plan to do business elsewhere in Canada, register as an extraprovincial or extraterritorial corporation.
• Request for all the licenses and permits your corporation may need.

That said, you can incorporate your business online, in person or, by mail. Depending on your situation, you can do it yourself or hire a lawyer.

If you need more clarification on how to Incorporate a business in Ontario, don’t hesitate to communicate through the comment section.

FAQs

Who Can Incorporate in Ontario?

Any business owner can incorporate a business in Ontario so far they are 18 years or older and are not undischarged bankrupt.

Furthermore, one or more corporate bodies can incorporate in Ontario

How Much Does it Cost to Incorporate a Company in Ontario?

The cost of incorporating a company in Ontario varies by the method used. However, you can spend up to $360 if you do it yourself or $1500 if you use a lawyer.

Can I Incorporate Myself in Ontario?

Yes, you can incorporate your business yourself in Ontario, whether online, in person, or by mail. DIY is the cost-effective option of incorporating a business in Ontario compared to the high cost of hiring a lawyer.

Does Incorporate Save Taxes?

Absolutely. Incorporating your business helps you enjoy tax advantages more than other businesses structures.

For example, corporate income tax rates are often lower compared to sole proprietorship tax rates. This is because your business is regarded as a legal entity, not a personal property, when you incorporate it.

If you’ve more questions on how to incorporate a business in Ontario, drop them in the comment section.