If you’re starting a business or looking to restructure an existing one, you may have come across the terms “incorporated” and “corporation.” While they may sound similar, there are important differences between the two. In this article, we’ll explore the differences between incorporated vs corporation and help you determine which one is right for your business.
What is a Corporation?
A corporation is a type of business entity that is separate from its owners, known as shareholders. A corporation has its own legal identity, which means it can enter into contracts, sue and be sued, and pay taxes. A corporation is typically managed by a board of directors, who are elected by the shareholders. Shareholders are typically only liable for the amount of their investment in the company, and their personal assets are not at risk.
What Does it Mean to be Incorporated?
Incorporation is the process of forming a corporation. When you incorporate your business, you create a separate legal entity that can own property, enter into contracts, and conduct business. By incorporating, you can limit your personal liability and protect your personal assets from business debts and lawsuits.
Incorporation also provides other benefits, such as easier access to capital, greater flexibility in ownership and management, and enhanced credibility with customers, vendors, and partners. Additionally, a corporation can continue to exist even if the owners or shareholders change.
What are the different incorporation types in Canada?
- Federal Corporation: A corporation that is incorporated under the Canada Business Corporations Act (CBCA) and operates across Canada.
- Provincial Corporation: A corporation that is incorporated under the provincial or territorial legislation and operates within the province or territory where it is incorporated.
- Non-profit Corporation: A corporation that is formed for purposes other than profit, such as charitable or social causes.
- Professional Corporation: A corporation that is owned and operated by licensed professionals, such as doctors, lawyers, or accountants.
- Cooperative Corporation: A corporation that is owned and democratically controlled by its members, who share in the profits and benefits of the corporation.
It’s important to note that the type of corporation you choose will depend on your business goals and needs, and the regulations may vary by province or territory. It’s always recommended to seek the advice of a legal professional when deciding on the type of corporation for your business.
What are the advantages of Incorporating?
- Limited liability protection: As mentioned earlier, incorporating your business can protect your personal assets from business debts and lawsuits.
- Access to funding: Corporations can issue stocks and bonds, making it easier to raise capital and grow your business.
- Tax benefits: Depending on your circumstance, you may be able to take advantage of tax deductions and credits.
- Professional image: Incorporating your business can enhance your credibility with customers, vendors, and partners.
- Continuity of existence: A corporation can continue to exist even if the owners or shareholders change, providing stability and security for your business.
What are the disadvantages of Incorporating?
- Higher costs: Incorporating your business can be more expensive than other forms of business ownership, and there may be ongoing fees and administrative costs.
- More regulations: Corporations are subject to more regulations and reporting requirements than other forms of business ownership, which can be time-consuming and costly.
- Loss of control: As a corporation, you may have to share control with shareholders and directors, which could lead to conflicts and disagreements. This may be an issue for a business who has a number of shareholders including investors. For incorporations where the shareholders and owners are the same individuals, this may not be as much of an issue.
What are shareholders?
Shareholders are individuals, organizations or other entities that own shares in a corporation. When a business is incorporated, it is divided into a certain number of shares, which are then sold to investors. Each share represents a portion of ownership in the corporation, and shareholders are entitled to a portion of the corporation’s profits based on the number of shares they own.
Shareholders typically have the right to vote on important matters related to the corporation, such as the election of the board of directors, major business decisions, and the distribution of profits. They may also attend shareholder meetings and receive regular updates and reports on the corporation’s performance. This is under a one class of share structure. You can include a second class of share for the corporation where these shareholders do not have voting rights and therefore may not partake in decisions for the corporation.
One of the benefits of having shareholders is that it allows corporations to raise capital by selling shares to investors. This can provide a significant source of funding for the corporation’s growth and expansion. Additionally, because shareholders are typically only liable for the amount of their investment in the corporation, incorporating the business can help protect their personal assets from business debts and lawsuits.
It’s important to note that the responsibilities and rights of shareholders can vary depending on the share structure and the laws and regulations in the jurisdiction where it is incorporated.
What percentage of business ownership in Canada is Incorporated?
According to Statistics Canada, as of December 2019, approximately 1.2 million corporations were registered in Canada. Of these, about 90% were small businesses with fewer than 100 employees. Many entrepreneurs choose to incorporate their businesses to take advantage of the legal protections and tax benefits that come with this form of business ownership.
Incorporation is a common choice for businesses in a range of industries, including technology, finance, real estate, and professional services. However, the decision to incorporate depends on a variety of factors, including the size and structure of the business, the industry it operates in, and the goals of the business owners.
Do you need a lot of capital to incorporate in Canada?
No, you do not necessarily need a lot of capital to incorporate a business in Canada. The amount of capital required to incorporate a business in Canada depends on the province or territory where the business is being incorporated. In many cases, the minimum amount of capital required to incorporate a business is nominal, such as $1 or $2. This means that it is possible to incorporate a business in Canada with very little capital investment.
However, it’s important to keep in mind that there may be other costs associated with incorporating a business, such as legal and administrative fees, and ongoing compliance and reporting requirements. These costs can vary depending on the province or territory, and other factors such as a separate tax filing with the Canada Revenue Agency.
Additionally, while incorporating a business can provide a number of benefits, it may not be the best choice for every business. Other options for business ownership include sole proprietorships, partnerships, and cooperatives, each of which has its own advantages and disadvantages.
Ultimately, the decision to incorporate a business should be based on a careful analysis of the business’s goals, needs, and financial situation, and should be made with the guidance of legal and financial professionals.
Ontario Business Central has 30 years of experience assisting those who wish to incorporate a business such as:
- Ontario Corporation
- Federal Corporation
- Ontario Professional Corporation
- Ontario Non-Profit Corporation
- Ontario Extra-Provincial Corporation
The information Ontario Business Central provides is solely to be used as an informative guide. We do not offer legal or accounting advice.
You may wish to obtain either legal or accounting advice prior to proceeding with the Sole Proprietorship Registration