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HOWS AND WHYS OF INCORPORATING FEDERALLY

With incorporating, a new corporation or company is launched, which is a legal entity  effectively recognized as a person under the law. The corporation could be a business (company), a non-profit organization, sports club or the administration of a new city or town.

In Canada, the process of incorporation is carried out either on the federal or provincial level. Federally incorporated companies would generally need to register extra-provincially in the province where they elect to do business. Similarly, a provincial corporation may need to register extra-provincially if they intend to have offices outside  the home province. Incorporations are completed quite quickly depending upon the jurisdiction of registration, as several provinces and the Federal government have started  electronic filing. Incorporated Canadian companies generally write Limited or Ltd., Incorporated or Inc., Corporation or Corp., or their french versions, after their names. However, this may vary from province to province.

Complexity in Structure

As a corporation is a separate legal entity without any physical form, its activities need to be carried out by individuals who have an interest in the corporation and are authorised to act on its behalf. Such individuals can generally be divided into three categories:

Shareholders — They are the owners of the corporation. They make decisions by voting and passing resolutions generally at a shareholders’ meeting. Their most important function is to elect the directors of the corporation.

Directors —  They oversee the management of the corporation’s business. A corporation must have at least one director. Directors are also responsible for appointing the corporation’s officers.

Officers — A corporation’s officers hold positions such as president, chief executive officer, secretary and chief financial officer. Although a corporation’s officers are appointed by the directors, their duties are normally set out in the by-laws. In general, officers are responsible for managing and executing the corporation’s day-to-day business.

Increase in Start-Up Expenses

When a sole proprietorship or partnership is incorporated, the start-up costs are more than before. Quite a few of these costs are directly related to the process of setting up the corporation, while others, besides contingencies, may include professional fees paid for legal and accounting services. There is no hard and fast rule stipulating legal opinion before incorporation of a business, but it is better to do so, especially when the company being set up has a complex share structure.

Formalities are Many

In Canada, it is a must for all federally incorporated businesses to file certain documents with Corporations Canada (a division of Industry Canada), which include:

  1. Articles of Incorporation;
  2. An Annual Return (which includeds a Notice of Change, if any); and
  3. Notices of any changes in the board of directors and/or the address of the registered office of the company.

A Canadian federally incorporated business must also:

  1. Maintain certain specified corporate records;
  2. File corporate income tax returns; and
  3. Register in any province or territory where it carries on business.

Submission of Documents to Corporations Canada

Corporations Canada scrutinise the Articles of Incorporation to ensure that the documents have been properly completed and that the proposed name is acceptable. If things are in order, then a Certificate of Incorporation, showing the name of the corporation, the corporation number and the date of incorporation, along with the Articles of Incorporation will be forwarded.

The date of incorporation happens to be the date on which Corporations Canada received the completed Articles of Incorporation and the fees. For administrative purposes, it may be necessary to request for a later incorporation date when the articles are filed.

The name of the corporation, incorporation date and other information will then be listed in the “Search for a Federal Corporation” of the Corporations Canada website.

It is not possible to retain the original filing date when an application is rejected for being incomplete. The original effective date is forfeited in such instances. An application is regarded as incomplete if it does not have all the necessary forms and schedules attached or if it is not signed. Two common examples of incomplete applications are: An application for incorporation that does not include the Initial Registered Office Address and First Board of Directors form or When item 4 of the Articles of Incorporation indicates that the information is on Schedule 1 and the application fails to include Schedule 1. In such instances, a notice indicating that the application is incomplete is forwarded.

Where an application is complete but is rejected for being deficient in some respect, for example, missing a consent for a corporate name, the effective date of the certificate can be the date of receipt of the original application subject to the condition that the applicant expressly requests this date when the application is resubmitted with the deficiency removed.

There is a chapter in Corporation Canada’s guidelines to help the applying company to prepare the incorporation application. That section, however, does not contain all the provisions of the Canada Business Corporation  Act (“CBCA”).

Advantages of incorporating federally

Name is well protected: A company gets the right to use a particular name after it has been subjected to very tough tests by Corporations Canada. Thus, when a company’s name is approved, it’s protected across the country – a status second only to trade-mark protection. In this connection, it is to be noted that the Province of Quebec does not currently provide data to NUANS. Having regard to that, for heightened protection, if business is carried out in the Province of Quebec or there are plans to do so in future, the Quebec corporation’s database at CIDREQ is to be searched as well.

Business can be done anywhere in Canada: Companies incorporated federally can carry on business anywhere in Canada, and the CBCA  does not set restrictions regarding the province or territory where the head office is located, corporate records are maintained and annual general meetings are held.

Recognition: Federal incorporation is regarded as a sign of distinction. When a company is incorporated under the CBCA, it is globally recognised as a Canadian company.

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