A corporation is used to limit liability for business ventures, organize ownership of a business ventures, or for tax or estate planning objectives. A corporation is owned by its shareholders and run by its officers. The directors and officers are appointed each year by its shareholders.
The incorporation process starts with naming the new corporation. Corporations can be named or identified by number. In both cases, corporations need to be identified as corporations with the word “incorporated” or “Inc.”, “limited” or “Ltd.” or “corporation” or “Corp.” in the name. If using a name, NUANS search must be done before a new corporation name can be reserved.
Naming a corporation offers some protection and exclusivity for use of the name, but it is not the same as a Trademark. A registered trademark offers total exclusivity throughout Canada. An unregistered trademark has exclusivity limited by the scope and use of its goodwill. Thus, a named company generally offers some protection but tends to be more local in nature. Be sure to discuss this issue with your lawyer to find out what is right for your company.
The share structure of a corporation is set out in its articles of incorporation. The corporation’s bylaws set out its shareholder voting and administration procedures. These documents can be tailored to the needs of the incorporating shareholders. Such things as the right to vote on shareholder resolutions, a share in dividends, or a share in the corporation’s equity upon wind up are set out in these documents.
The share structure can also be tax driven because certain share structures allow certain types of tax planning such as the payment of dividends. Setting up the share structure is often done in consultation with a tax accountant with experience in corporate tax. If you do not know someone, we can refer you to the right person.
The new corporation’s shareholders and officers are selected at incorporation. If there is more than one shareholder, a unanimous shareholder’s agreement (“USA”) may be important to set out the rights of shareholders to acquire more shares, force other shareholders out, or sell their shares. As corporations are administered according to the majority of voting shares, shareholder agreements can be crucial.
A USA is also an essential tool to set out all parties’ expectations. Many a friendship has been ruined by going into a business partnership only to find out each person had different expectations and a dispute resulted. As good fences make good neighbours, a good USA make good business relations between shareholders.
A new corporation must select a registered office where legal documents can be delivered and a records address where the corporation’s minute book is kept.
Once incorporation has taken place, share certificates are created and usually kept in the corporation’s minute book along with all of the other records required to administer the corporation on an ongoing basis.