Business Incorporation: What You Need to Know

Why Incorporate Your Business?

Incorporating your business is one of the most important decisions you'll make as an entrepreneur. A corporation is a separate legal entity from its owners, which provides significant advantages in terms of liability protection, tax planning, and business credibility.

At Collingwood Law Office, we've helped countless entrepreneurs establish their corporate structure. This guide will walk you through the key considerations when incorporating in British Columbia and Canada.

Benefits of Incorporation

1. Limited Liability Protection

One of the primary reasons to incorporate is to protect your personal assets. As a corporation:

• Your personal assets (home, car, savings) are separate from business debts
• Creditors generally cannot pursue personal assets for business debts
• Shareholders' liability is limited to their investment in the company

Important Note: Limited liability is not absolute. Directors can be held personally liable for unpaid wages, source deductions, and certain environmental violations.

2. Tax Advantages

Corporations enjoy several tax benefits:

• Lower Tax Rates: Small business corporations qualify for the Small Business Deduction, with a federal rate of only 9% on the first $500,000 of active business income
• Income Splitting: Pay dividends to family members who work in the business
• Tax Deferral: Leave profits in the corporation to be taxed at corporate rates rather than personal rates
• Capital Gains Exemption: Potential lifetime capital gains exemption of over $900,000 when selling qualified small business shares

3. Enhanced Credibility

Operating as a corporation signals professionalism and permanence:

• Easier to secure financing from banks
• More attractive to investors
• Greater confidence from customers and suppliers
• Professional image with "Inc." or "Ltd." designation

Types of Corporations in Canada

Provincial vs. Federal Incorporation

Provincial Corporation (BC):

• Incorporated under BC Business Corporations Act
• Lower initial cost ($350 online filing)
• Name protection only in British Columbia
• Sufficient for most small to medium businesses

Federal Corporation:

• Incorporated under Canada Business Corporations Act
• Higher initial cost ($200 federal + provincial registration)
• Name protection across Canada
• Recommended for national operations or future expansion

Corporate Structure Options

Sole Proprietorship vs. Corporation: While not a corporation, understanding this comparison is crucial:

• Sole proprietorship: Simplest structure, no liability protection, income taxed personally
• Corporation: More complex, liability protection, potential tax advantages

Steps to Incorporate in BC

Step 1: Choose a Corporate Name

Your corporate name must be:

• Unique and not confusingly similar to existing names
• Include a legal ending (Ltd., Inc., Corp.)
• Pass a BC Registry Services name search

Alternatively, you can use a numbered company (e.g., "1234567 B.C. Ltd.") and operate under a business name.

Step 2: Prepare Incorporation Documents

Required documents include:

• Notice of Articles: Basic corporate information
• Articles: Corporate rules and structure
• Incorporation Agreement: Initial shareholder agreement

Step 3: File with BC Registry

Submit incorporation documents and pay filing fees. This can be done online or through a lawyer.

Step 4: Obtain Business Number and Tax Accounts

• Register for Canada Revenue Agency (CRA) Business Number
• Open GST/HST account (if applicable)
• Set up payroll account (if hiring employees)
• Register for WorkSafeBC

Step 5: Create Corporate Records

• Corporate minute book
• Share certificates
• Organizational resolutions
• Shareholder agreement (highly recommended)

Ongoing Corporate Obligations

Annual Requirements

• Annual Report: File with BC Registry by anniversary date
• Tax Returns: Corporate T2 return due 6 months after year-end
• Director Meetings: Hold regular meetings and keep minutes
• Financial Statements: Prepare annual financial statements

Record Keeping

Corporations must maintain:

• Corporate minute book with all resolutions and meetings
• Shareholder register
• Director register
• Articles and bylaws
• Financial records for 7 years

Common Incorporation Mistakes to Avoid

1. No Shareholder Agreement

Many entrepreneurs skip this crucial document. A shareholder agreement prevents disputes by outlining:

• How shares can be transferred or sold
• What happens if a shareholder dies or wants to leave
• Dispute resolution mechanisms
• Roles and responsibilities of each shareholder

2. Mixing Personal and Corporate Finances

This is one of the fastest ways to lose your liability protection. Always:

• Keep separate bank accounts
• Pay yourself through salary or dividends
• Document all transactions
• Maintain proper accounting records

3. Failing to Maintain Corporate Formalities

Even small corporations must:

• Hold and document director meetings
• File annual reports on time
• Update registered records when changes occur
• Keep corporate minute book current

Cost of Incorporation

Budget for these expenses:

• Name Search: $30-50 (if using named company)
• Filing Fee: $350 (online) or $380 (paper)
• Legal Fees: $1,500-$3,000 for full incorporation service
• Minute Book Kit: $100-200
• Annual Report Fee: $41.43 (annually)

Is Incorporation Right for You?

Consider incorporating if:

• Your business generates significant income (generally $50,000+)
• You want liability protection
• You plan to retain profits in the business
• You want to sell shares to raise capital
• You're in a high-risk industry

You might wait to incorporate if:

• Your business is just starting with minimal revenue
• You have no personal assets to protect
• You want to minimize administrative costs
• Your business is low-risk

How We Can Help

At Collingwood Law Office, we provide comprehensive incorporation services including:

• Choosing the right corporate structure for your needs
• Name search and reservation
• Preparing and filing all incorporation documents
• Drafting shareholder agreements
• Creating customized articles and bylaws
• Setting up corporate minute book
• Ongoing corporate maintenance and compliance