Incorporating a business in Ontario is a popular option for entrepreneurs who want to protect their assets, access funding, and benefit from tax advantages. Though it requires a complex legal process, it offers numerous advantages, including liability protection and tax benefits.
In this article, I’ll provide a step-by-step guide on how to incorporate a business in Ontario, the legal and tax implications of incorporation, and the advantages and disadvantages of this business structure.
By following these steps, you can ensure that your business is incorporated correctly, and you can start taking advantage of the benefits of incorporation in Ontario’s dynamic business environment.
How to Incorporate a Business in Ontario
Incorporating a business in Ontario requires an arduous process. While hiring a lawyer can be beneficial, it can be quite pricey.
Incorporating your business yourself can save you money, though it would require lots of time to prepare the paperwork and submit it to all the right entities.
The Ontario Incorporation is regulated under the Ontario Business Corporation Act (OBCA) and requires you to file Articles of Incorporation.
Here are the requirements for incorporating a business in Ontario according to the 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. One person can hold both positions.
Follow this step-by-step guide to incorporate your business in Ontario:
Step 1: Choose a Corporate Name
Choosing a corporate name that reflects your company and appeals to your target customers is essential.
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 misleadingly or confusingly. Also, ensure that another company has not taken your name.
To ensure your name is still available and not taken by any business, you should perform a thorough NUANS search. NUANS search is compulsory when incorporating your business in Ontario.
Step 2: Order A Corporate Registered Address
An Ontario-registered address is required for every corporation in the province. Corporations often use a separate corporate registered address to keep government correspondence away from everyday corporate correspondence.
Maintaining privacy is even more crucial if you have a home business. You can order a corporate registered address through platforms like Business Development Centre.
Step 3: Complete and File Articles of Incorporation
You must complete the Articles of Incorporation document to incorporate your business in Ontario. The document will be submitted to a particular government department after completing it.
However, you will receive the Article of Incorporation document once your application is approved. The Article of Incorporation confirms your legal incorporation registration with the Ontario government.
Step 4: Establish the First Board of Directors
You must decide who will make up your corporation’s board of directors. Ensure each director meets the eligibility requirements set by the government.
You must disclose each director’s name, address and whether or not they are Canadian residents when you incorporate your business.
How Much Does It Cost To Incorporate A Business 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.
Benefits 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. Your business is considered a corporate entity subject to all liabilities.
As a result, your 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 corporate income tax rate is often lower than the sole proprietorship tax rate. Sometimes, the corporate tax rate 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.
Downsides 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. Which means you will have to include paying legal fees.
Incorporating a business is very complex, from registering to running the business. You may need third-party help to incorporate your business successfully. On average, lawyers charge $1500 for such a service.
Your corporation must file legal and tax returns yearly to maintain good standing with the authorities. This is a time-consuming process that requires constant attention from all shareholders.
Final Thoughts on How to Incorporate a Business in Ontario
Incorporating your business 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.
Also, you stand a chance to access loans and grants that are specifically designed for incorporated companies.
However, it’s essential to consider the drawbacks of incorporation before venturing into it. But even if you’re comfortable with it, you should follow due process to incorporate your business.
If you need more clarification on how to Incorporate a business in Ontario, don’t hesitate to communicate through the comment section.
FAQs on How to Incorporate a Business in Ontario
Who Can Incorporate in Ontario?
Any business owner can incorporate a business in Ontario so far they are 18 years or older and have not declared bankruptcy. Also, one or more corporate bodies can incorporate into Ontario
Can I Incorporate Myself in Ontario?
Yes, you can incorporate your business in Ontario, whether online, in person, or by mail. DIY is the cost-effective option for 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 business structures.
For example, corporate income tax rates are often lower than sole proprietorship tax rates. Your business is regarded as a legal entity, not 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.