When your business is growing, the next step could be incorporating the business.
In Ontario, you create a legal entity with business incorporation. Just like a person, your business will have rights and responsibilities as well as protection and liability.
The task of incorporating a business is neither plain nor simple . Many details must be taken into account. For this reason, many business owners prefer to hire a business lawyer to handle it.
Keep reading this article to understand the pros and cons of incorporating a business, the step-by-step process, the potential costs, etc.
If you are searching for the right business lawyer to help with your business needs, fill out the short online form on this page with no obligation or cost.
Reasons to incorporate your business in Ontario
Are you wondering whether it is a good idea to incorporate your business?
Many business owners start a business as a sole proprietorship or partnership. While this may seem logical and practical at the start, certain circumstances may be advantageous or necessary as your business grows.
What to consider before incorporating a business
There are 2 types of incorporation in Ontario – non-profit and for profit. Most businesses are for profit.
Incorporation is not ideal for all business owners and in some situations, sole proprietorship is still a good option. Before you incorporate a business, consider the following.
Liability
If the business is a sole proprietorship, it cannot be held liable for debts or claims as it is not a legal entity. The full liability is shouldered by the business owner. This means the owner’s personal assets and savings are at risk.
In contrast, a corporation is a legal entity that is separate from the owner. Liability falls squarely on the business, shielding owners from risking their personal assets. This is appealing to many business owners as it reduces their personal risk.
Tax Benefits from Incorporation
In a sole proprietorship, the revenue from the business must be declared on the owner’s personal income tax. As the business grows, the owner may reach the higher tax bracket.
A corporation pays corporate tax rates which are generally lower than personal income tax rates. Health and travel insurance costs are also protected by corporate tax rates. Incorporating a business offers significant tax advantages.
If you incorporate your business, you can have a salary which can protect you from larger personal income tax. In a sole proprietorship, most of the earnings revert to the business and your personal income tax is higher. In a corporation you can be in a lower tax bracket which reflects the actual income.
Access to Funds
A corporation can be qualified to obtain business grants and loans which are more challenging to get for sole proprietorships and partnerships.
You can evaluate the above factors to help you decide if incorporation is ideal for your business. You can also consult a business lawyer to explore your options and get legal advice for your business goals.
If you want to incorporate your business, find the right business lawyer from JuriGo to assist you.
Just fill out the short online form on this page, free of charge.
Do you really need a business lawyer to incorporate a business?
Once you decide to incorporate your business, the next decision to make is whether you can do it yourself or hire a lawyer.
Incorporating a business takes time and money. Legal fees can be hefty but consider the value of your time if you prepare all the documents required and go through the application process.
As a business owner, your time is valuable. Can you afford to spend time away from your business to devote to the task of incorporation? Will the legal fees be worth the cost if you can focus on your business instead?
A good business lawyer will simplify the process of incorporating your business so you can manage your business without interruption.
Is it mandatory to hire a lawyer for incorporation?
There is no requirement under the law to hire a lawyer to incorporate a business. Anyone can apply for incorporation of a small business.
There are multiple legal considerations that may not be obvious to the average business owner without legal expertise. You will benefit tremendously from the insights and guidance of a business lawyer to safeguard your interests.
A lawyer’s fees can also include consulting and giving you sound advice about how to structure your corporation so you can get tax benefits. Your lawyer can also help you with other legal tasks concerning directors and shareholders, contracts, etc.
Step-by-Step Process for Incorporating a Business in Ontario
If you are establishing a business in Ontario, you must first choose the company entity. For many entrepreneurs, the common form is a corporation. This means the business does its activities under its own name. As an example, a corporation signs contracts, files lawsuits, etc. under its own name.
The process of incorporating a business in Ontario involves several steps, namely:
- Selection of a business name (if creating a new business).
Choose the company name for your new business. This name will be the identity of the corporation. No other business must be using this name so you must verify via a business name search availability. There are 2 ways to do this:
The Enhanced Business Name Search is the most basic search available in Ontario but covers only sole proprietorships, general partnerships, and Operating Names in Ontario. As you don’t want to infringe on existing trademarks, it is advisable to do a more thorough search via a Free Preliminary NUANS Search. If the search is clear, get the required NUANS Name Reservation Report.
Selection of the Legal Structure and Entity
Selecting the right legal structure and entity for a corporation is a critical decision to make. A lawyer can explain the pros and cons of each one, namely federal or provincial incorporation, partnership, or sole proprietorship.
A lawyer will guide you by assessing the needs of your business so you can choose the ideal structure.
File Articles of Incorporation
Setting up a corporation requires many legal documents including the Articles of Incorporation, bylaws, director resolutions, and shareholder agreements.
Ontario incorporation is under the purview of the Ontario Business Corporations Act (OBCA) which mandates the filing of the Articles of Incorporation. The Articles of Incorporation should include the corporation name, named directors, shareholders, and the effective date . All of these information must be filed as Form 1.
A good business lawyer can draft and review all of these documents to ensure they are in accordance with your goals and comply with the laws and regulations.
- Adoption of Corporate bylaws
Bylaws provide the internal rules that govern the corporation. It describes the duties and obligations of the directors and officers to determine how the company operates. A lawyer can draft your corporate bylaws according to your wishes.
- Creation & maintenance of a Minute Book
A minute book is a file that contains the records of a corporation required by law. A minute book includes the following:
- Articles of Incorporation
- Corporate Bylaws
- Minutes of Organizational Meetings
- Shareholder and Director meetings
- Shareholder Agreements
- Resolutions
- Copies of forms filed with the government by the corporation
- Ledgers of directors, officers, shareholders, and share transfers
It is vital to properly create and keep a Minute Book. Failure to do so can result in severe consequences, including the loss of corporate status and perks such as limited liability. Find a lawyer to help with the necessary legal paperwork for your corporation.
- Getting a Business License
You will need a business license from your municipality or city. Some businesses may need to get a license from the Regional District Office.
It is important to check that your corporation complies with zoning bylaws and land use regulations.
- Obtaining a Business Number
When you have filed your papers with the Ontario Government, your file will be sent to the proper offices to create a business number for your corporation.
Upon receipt of the business number, you must open the following accounts with Revenue Canada:
- GST account
- Payroll Deductions account
- Corporate Income Tax account
- Import/Export account
Harmonized Sales Tax
Ontario now applies the harmonized sales tax (HST). The HST applies to most purchases of taxable goods and services at a rate of 13% - 5% federal 8% provincial portion.
All businesses in Ontario that are registered for the GST must also collect and report the HST based on their GST filing schedule.
- Register with the WSIB
If you plan to hire workers or already hired them, you must register with the Workplace Safety and Insurance Board (WSIB).
The average cost to file the incorporation documents in Ontario is $300 to $360online, via mail, or in person.
Complying with regulatory requirements
Business incorporation requires compliance with certain regulations. A business lawyer will be knowledgeable about regulatory requirements and will assist you in navigating these, including the registration of your business with proper government agencies, securing the necessary permits or licenses, and satisfying labor and tax regulations.
Incorporating in Ontario vs. Incorporating in Canada
Incorporating federally is much like incorporating In Ontario; you can also choose to do both. If you do, you can protect your corporation name throughout Canada .
You will also need to file the Articles of Incorporation to incorporate federally. This step is probably the most complicated one and it is advisable to get legal assistance.
The cost to incorporate federally is around $200, cheaper than provincial incorporation.
You must know that incorporating a business in Ontario means your rights apply only in Ontario. Consult a business lawyer to incorporate in Ontario or in Canada.
Comparing DIY Incorporation vs. a Business Lawyer in Ontario
Small business owners will consider incorporating their business at some point. Aside from business considerations, many will be concerned about the cost.
What is the cost of incorporating if you do it yourself vs. hiring a lawyer to do it for you?
DIY Incorporation
The cost is less than $400 plus paper, pre-printed share certificates, and 3-ring binder.
Pros: You can incorporate without the assistance of a lawyer. Just fill out the required paperwork and pay the registration fee. You will also do a name search and register it. This is the cheapest way to incorporate a business as you take out the middleman.
Cons: The office receives the form and registration fee but don’t provide advice. They won’t help with the number or types of shared or help you draft or review your bylaws or Articles of Incorporation.
Lawyer-assisted Incorporation
Lawyers don’t usually advertise their fees but on average, lawyer-assisted incorporation could cost around $2,000++.
Pros: A lawyer will help with the share structure that lets you issue several common voting, non-voting, and preference shares. This will also allow you to income-split and restructure if necessary.
A lawyer can also prepare your minute book and all of the incorporating minutes needed under the Act. He can continue to manage the minute book on your behalf.
Cons: The only disadvantage to lawyer-assisted incorporation is the cost. However, having a lawyer work on the incorporation of your business is well worth the price because you can be sure that the process complies with existing regulations. You also save a lot of time which is of great benefit to business owners.
Why is incorporating a business in Ontario a good idea?
Incorporating a business in Ontario is a great option for businesses. It reduces the personal liability of business owners from debts and other business obligations. It also provides tax advantages to business owners and opens up easier access to funding.
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Choosing the right business lawyer for Incorporation in Ontario
If you are planning to incorporate your business, hiring a business lawyer will make your life easier.
There are also many other benefits to hiring a business lawyer. You get access to expert legal advice and help with all the steps of incorporation to save time.
You could find online services that offer cheap incorporation packages but these services are limited to just the first step, filling out the application form and submitting it.
On the other hand, a business lawyer will work with you from the first to the last step and can even provide ongoing legal advice for your business needs.
A lawyer specializing in business law will ensure your company is set up correctly to protect its legal status.
Get a legal expert with knowledge about your industry to help with incorporating in Ontario.
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