Incorporating Your Okanagan Business
Incorporating your business is the single most important step in protecting yourself in business and achieving the greatest tax efficiency. Business Law Group prides itself in providing a timely and affordable business incorporation package. Contact Business Law Group for a free quote on incorporating your business.
Frequently Asked Questions
What is a Business Corporation?
A corporation is a more sophisticated form of business organization compared to a sole proprietorship or partnership, but may offer substantial advantages to business owners. Unlike a sole proprietorship or general partnership, a corporation is treated as a separate legal person from the business owners. As such, a business owner is not exposed to the same personal responsibility for the obligations of the company, such as debts or lawsuits associated with the business. A properly incorporated business can provide much needed protection to the business owners.
Why Incorporate Your Business?
Of the various forms of business organizations, the business corporation is the most sophisticated and common form of business ownership for most Canadian business owners. The following represents an overview of the key benefits and costs of incorporating a business corporation.
Limited Liability for Owners
A corporation is treated as a separate legal person from its owners. In many respects, a corporation has the same legal status a natural person. For example, a corporation can sue and be sued, borrow and lend money, enter into contracts in its own name, and become accountable for taxes. Unlike sole proprietorships and partnerships, the owners of a company are not generally personally liable for the actions of the business. A properly incorporated business can be a highly effective tool for protecting a business owner’s personal assets from the liabilities of the business.
Flexible Ownership Structure
A business corporation offers the most flexible means of shared ownership. Unlike other forms of business organizations, ownership of a corporation is evidenced by shares. The Business Corporations Act provides a comprehensive framework within which shares of a Corporation may be issued, transferred, sold or repurchased by the corporation. This framework provides owners with a great deal of flexibility in sharing ownership, raising capital or changing the ownership structure of a business.
Carrying on business as a corporation can offer business owners a variety of tax advantages over simpler forms of business organization. Among these advantages are the ability split income with family members, defer income and take advantage of the Lifetime Capital Gains Exemption if the business is sold for a profit.
At the time a corporation is incorporated, family members may be issued shares in the corporation for nominal value. As shareholders of the corporation, these family members are entitled to profits from the corporation, even if they do not actively participate in the business. This ability to allocate profits from the corporation to family members in lower marginal tax brackets can produce significant tax advantages for the business owner and his or family.
Unlike other forms of business organizations, income from a corporation is taxed in the hands of the corporation, not the owners. Owners of a corporation do not pay any income tax until the profits of the corporation are actually distributed in the form of dividends. Although the corporation must pay tax on its income in the year it is earned, the owners may generally determine the timing of distributions of profits from the corporation, allowing owners to defer the payment of tax until such a time as it suits them.
Lifetime Capital Gains Exemption
Generally owners of shares in a small business corporation will be entitled to a capital gains deduction, which may be used by the owner to claim against any capital gain arising from the sale of the business. The deduction limit is currently $375,000 for an individual’s lifetime, which effectively provides for a tax free capital gain of $750,000. Other forms of business organizations do not qualify for this type of deduction when the business is sold.
Costs of Incorporating
While corporations are face higher start-up and annual maintenance costs than other forms of business organization, the long term benefits to business owners will quickly make up for these costs.
What Are The Costs?
Business Law Group charges a single fixed fee plus taxes for all of the above mentioned services in connection with your new business corporation.
Please contact Business Law Group to set up your appointment to incorporate your new business.
How To Incorporate Your Okanagan Business
Incorporating a company with the B.C. Corporate Registry, otherwise known as the registrar, is a complex process with numerous steps:
Step 1: Choose a Company Name
A company may be incorporated using a numbered name or by reserving a name with the registrar. In order to reserve a name for a company, a name reservation must be electronically submitted to the registrar and the prescribed filing fee of $30.00 plus the service fee of $1.68 must be paid. When submitting a name reservation up to three choices for a name may be submitted. A company name must include a distinctive element followed by a descriptive element followed by one of the prescribed corporate designation words identifying the name as a corporation. Care should be taken in selecting a company name so as to avoid the costs of filing multiple name requests.
Step 2: Enter into an Incorporation Agreement
Before a company may be formed there must be an incorporation agreement signed by the person(s) or company incorporating the company (known as the incorporator(s)). This is a requirement even if there is only one person incorporating the company. It is important to note that the incorporator acts as the first shareholder of the company and must take up share(s) in the company upon incorporation. The Business Corporations Act specifies the information that must be included in the incorporation agreement. The signed incorporation agreement must then be kept in the company’s records book.
Step 3: Establish Company’s Articles
Every company must have a set of articles that conform with the requirements of the Business Corporations Act. The articles of the company are essentially the rules that govern the conduct of the company, its shareholders, its directors and its officers (if applicable). The Business Corporations Regulation has a standard set of articles set in Table 1 which contains very basic rules and regulations for a company. Alternatively, an incorporator may adopt any other form of articles they wish upon incorporation. Individuals incorporating a company should take great care in selecting the appropriate set of articles for their company, including the share structure of the company (see more details on share capital below). The articles must be signed by the incorporator prior to filing the incorporation application with the registrar. The articles must also be kept in the company’s record book.
Step 4: Establish the Share Structure of the Company
The share structure of a company means the types, classes and series of shares, and the limits, if any on the number of shares of those kinds, classes and series of shares that a company is authorized to issue. In addition to the foregoing, shares often have special rights and restrictions as designated in the company’s articles. The authorized share structure of a company may consist of shares with par value, shares without par value or both kinds of shares. Shares with par value limit flexibility in establishing the issue price and the capital of a share. Shares without par value provide more flexibility when issuing shares; however, they may also result in other potential problems. All these issues must be addressed prior to incorporation and should be carefully considered as the authorized share structure for a company may result in adverse tax consequences in the future.
To discuss the benefits of a carefully planned authorized share structure for a business corporation please contact a lawyer at Business Law Group.
Step 5: Establish the Directors of the Company
The directors are the mind and management of a company. A company must have at least one director at all times. The registrar requires that the mailing and delivery address of all directors be submitted to the registrar in connection with the incorporation application.
Step 6: File the Incorporation Application with the Registrar
An incorporation application must be filed electronically with the registrar and the prescribed filing fee of $350.00 plus the service fee of $1.68 must be paid. This application requires the following information be provided:
a) Name Reservation Number, if any;
b) Incorporator Information including mailing and delivery address;
c) Completing Party information including a mailing and delivery address;
d) Director Information including mailing and delivery addresses for each director;
e) Registered and Records Offices information;
f) Authorized Share Structure, including the types, classes and series of shares, the authorized number of shares for each class and/or series, and whether there are special rights and restrictions on each class and/or series of shares;
g) Email address for the company; and
h) Company password.
After the incorporation application has been filed with the registrar, an uncertified copy of the Incorporation Application will be generated. The certified Incorporation Application, certified Notice of Articles and certified Certificate of Incorporation will be issued to the incorporator approximately one week after the incorporation. The company is considered to be incorporated on the date and time that the incorporation application is submitted to the registrar.
Step 7: Organization of the Company
After the company is incorporated, the basic affairs of the company must be organized which includes issuing shares to the incorporator, transferring the incorporator’s share(s) to the first shareholder of the company (if applicable), issuing shares to any other shareholder(s), having the director(s) consent to act as director and appointing officer(s) (if applicable). The corporate records book (often referred to as the ‘minute book’) must be organized and necessary constating documents must be generated including:
a) the first consent resolutions of the directors in lieu of a meeting of the directors which will authorize the issuance of shares, appoint officer(s), if applicable, and conduct any other business as may be required under the Business Corporations Act;
b) the first consent resolutions of the incorporator(s) in lieu of a meeting of the incorporator(s) which will determine the number of director(s) the company has, authorize the appointment of the director(s), waive the appointment of an auditor for the company for the current fiscal year (if applicable) and conduct any other business as may be required under the Business Corporations Act;
c) consent for all directors of the company as required under the Business Corporations Act;
d) share subscriptions for all shareholders;
e) compile a securities register for the company which details all of the shareholders of the company including the number of shares and class of shares each shareholder holds;
f) compile a register of director for the company which details all of the directors and officers (if applicable) of the company including the date of appointment and office held (if applicable);
g) generate all share certificate(s) required; and
h) compile all company records into a corporate minute book.
How Long Does It Take to Incorporate A Company?
A company is incorporated immediately on the electronic filing of an incorporation application with the registrar. As such, a company can often be incorporated on the same day as your consultation with a lawyer. If you wish to name your company and have not already obtained a name reservation, then you can expect 1-3 business days for a name reservation approval, following which the company may be incorporated immediately.
What Is A Numbered Company?
A numbered company is simply a corporation that has been assigned a name by adding “B.C. LTD.” after the incorporation number, rather than one chosen by the incorporator. The incorporation number is automatically assigned by the registrar to the company after the incorporation application is filed. An incorporator may not reserve its incorporation number or request a specific one.
What Are Annual Filing Requirements?
Every B.C. company must file an annual report with the registrar containing information that is current to the most recent anniversary within two months after each anniversary of the date on which the company was recognized or incorporated.
The registrar may dissolve a company if it fails to file an annual report for two consecutive years.
In addition to the filing requirements noted above, a company must hold a shareholder’s annual general meeting for the first time no more than 18 months after the incorporation date, and after its first annual reference date, at least once in each calendar year and not more than 15 months after the annual reference date for the preceding calendar year. There are certain provisions under the Business Corporations Act that allow shareholders to pass consent resolutions in lieu of the meeting or waive the holding of the meeting. Where a company is passing written consent resolutions in lieu of holding an annual general meeting of the shareholders, it is common practice to have the directors carry out the minimum business required to be carried out by them each year, the approval of the financial statements and the appointment of officers, dealt with by written consent resolutions as well.
What Is A Registered And Records Address?
Every company incorporated under the Business Corporations Act must maintain a registered office and records office in British Columbia. Both offices may located at the same place.
The registered office is the location to which certain documents (often notice of a law suit) may be delivered or mailed to be effectively served or to meet a requirement of the Business Corporations Act.
The records office is the location of to which certain corporate documents of the company are held as required under the Business Corporations Act.
A company must specify the mailing and delivery address of both its registered office and records office in the incorporation application filed with the registrar.
Care should be taken when selecting a records office because if a person who is entitled under the Business Corporations Act to obtain a list, to inspect a record or to receive a copy of a record from the records office of the company and the records office fails to comply then the person seeking the record may, on notice to the company, apply in writing to the registrar for an order. Without limiting the power of the registrar, the court may on application make the order it considers appropriate and may without limitation order the company to pay to the person who requested the record damages in an amount that the court considers appropriate.