Starting A New Business | Incorporating
Starting a business can be overwhelming. There are so many practical and legal decisions to make. Perhaps you already have an ongoing business but now you are thinking about incorporating. Consulting a lawyer can help you make proper decisions and get the work done. Here is some information I hope you will find helpful. Keep in mind that it relates to Saskatchewan and Canada. If you are in a different jurisdiction, some of this information may not apply to you.
What are your choices?
Not incorporated: You don't have to be incorporated to operate a business .. although there can be some advantages to a corporation. Except for some unusal exceptions, your typical choices are:
Incorporated: If you decide to incorporate, the corporation is a separate legal entity. It has its own legal name. It can sue or be sued under that name. It has its own income or losses, separate from those you have as a person, and must file its own tax return. It must also file an annual return and pay an annual fee to a government office to keep this standing. The corporation can be incorporated through the provincial government or the federal government. It is by far more common to incorporate provincially as most people are only doing business in one province. However, if nation wide protection of your business name, for example, is important, a federal Canada Corporation may be the way to go.
Other Business Entities: In a few special situations, such as where a group of people decide to purchase a commercial building, a tax professional may suggest using something called a limited partnership. Without going into the details, it is sort of a mix between a corporation and a partnership. Most people would not need or want to operate a business this way. It requires special circumstances. If you are a charity or other non-profit association, you may decide to incorporate as a non-profit corporation. Many of the concepts are similar to business corporations, but not all.
Should You Incorporate?
A corporation (a company) can have certain advantages and disadvantages over a non-incorporated business. As a general rule, the larger the business, the more urgent it becomes to be incorporated. Some considerations are:
Names for Carrying on Business:
Business & Corporate Names: If you are a doctor, you may decide to operate your business as Dr. Peter Smith, M.D.. There may not be any need for a business name. However, if you are a restaurant or other business, you likely would want a unique name to identify your business. By law, you are required to register the business name with government authorities to ensure that the public has access to know who they are dealing with. This means that a special type of search needs to be made to ensure the name or something too similar to it is not being used elsewhere. You need to go through this procedure whether you want to be incorporated or unincorporated. You are not allowed to use names that are misleading or too similar to someone else's name. The name also needs to be unique and descriptive of what you are doing. For example, the name "Shoe Repair" would likely be descriptive because it tells the public that you repair shoes. However, it is not unique. That's why you need to also have a unique element as well, such as "John's Shoe Repair" or "Reliable Shoe Repair".
If you are a corporation, the words "Inc.", "Incorporated", "Ltd.", "Limited", "Corp." or "Corporation" (or the French versions) need to be added to the end of your name to tell the public that there is limited liability.
If you want a corporation but you do not care about the name, you can let the corporations branch assign one by default. That's why you see names such as 123456 Saskatchewan Ltd.. It just means that the business name is not particularly important so the person incorporating was able to save the expense of the name search.
If you are not incorporated, the name of your business is a "Business Name". You cannot have a phrase such as "Inc." at the end of an unincorporated business name.
Trademarks: A trademark is a federal registration of a name but it won't have "Inc." or any similar phrase at the end. For example, you may have a company that manufactures hand soap in Canada. Your company name might be Canadian Household Consumer Products Inc.. Since that would not be very suitable for advertising or the label on your bottle, you might trademark the name "Dishelle". If you register the trademark, no one else will be allowed to register or start carrying on business under that name after the date of your trademark. However, you can't use that to block someone who is already using the name.
Key Concepts in a Corporation
Directors, Officers & Shareholders: If you have a business corporation/company, you will have shareholders, directors and officers. Shareholders own a stake in the business but they do not automatically have the right to operate the business. If your shares are voting shares, you typically have the right to cast your vote in deciding who will be directors of the company. However, not all shares carry the right to vote. Some shares are non-voting.
Directors are the people elected by shareholders to operate the overall business of the corporation. Officers, are the directors with titles such as "president", "secretary", "treasurer", etc. This last group of people is determined by the directors. An officer usually is a director as well, but does not need to be. In a non-profit corporation, the rough equivalent of a shareholder (but with many differences) is a "member".
Articles of Incorporation and Bylaws: The articles of incorporation of a company is the document that sets out the the basic setup of the corporation. For example, it will say how many types (classes) of shares there are and the rights associated with each class of shares. It may also say whether the business the company can carry on is restricted. It may restrict the sale of shares, etc.. A properly drafted set of articles requires the help of a knowledgable lawyer.
Bylaws are the rules of procedure that a company needs to follow when conducting internal business, such as calling and holding meetings of directors and shareholders.
Notice: The information on this website is general in
nature only. It relates to Saskatchewan, Canada and may not be
applicable in your jurisdiction. It does not constitute legal
advice to you and no solicitor client relationship will be established.
You should seek specific legal advice regarding your circumstances
from a lawyer entitled to practise law in your jurisdiction.
www.rickcarlson.com | Fri, 17 Aug 2018 15:46:11 CDT1