Hey guys! Today's post is going to answer questions about what a Certificate of Incorporation really represents.

I am a lawyer and have been doing this for more than ten years. I have had the privilege of working with a range of businesses including various corporations. 

Last year, when we first got locked down, I was of course a bit shocked. As time goes on, I started thinking about how I can give something back to our community. One idea was to create this blog as a source of credible, reliable information. In particular, I hope that this first set of blog posts is helpful for guys (and girls) who may be first-time entrepreneurs. 

This question -- i.e., what is a Certificate of Incorporation and what does it really represent-- comes up from time to time. In fact, there is some unnecessary confusion about what exactly the Certificate of Incorporation represents. Let me try to clear things up. 

It's all good, man. What You Will Learn Today

You already know that the corporation is a separate legal entity. That sounds simple enough at first, but when you stop to think about it you might have questions about how exactly this separate legal entity comes into existence. 

Metaphorically speaking: how does the corporation go from being a glimmer in someone's eye to being a legal entity with rights and responsibilities? 

In Canada, it makes sense to think of the corporation's birth as divided in to two steps. 

In the first step, an application is made to either the federal or provincial government. For example, in Ontario, a Form 1 is submitted to the Ministry of Government and Consumer Services. Provided that the contents of the Form 1 are not obviously out of order, the Ministry will issue a preliminary approval. 

In the second step, the corporation drafts its first shareholders' and directors' resolutions. These initial resolutions organize the corporation. They determine the corporation's key actors by electing directors, appointing officers, and issuing shares to shareholders.

We can switch metaphors and say that the first step represents the fertilization of the corporate egg while it is only with the second step that the corporation is fully born.

In practice, Step 1 and Step 2 are connected. In fact, there is an unspoken assumption that the performance of Step 2 will immediately follow the performance of Step 1.  

What Does this Have to do With the Certificate of Incorporation?

The two steps of incorporation provide a context for understanding the Certificate of Incorporation. 

Let's go through this in terms of first Ontario incorporation and then federal incorporation 

Ontario Incorporation: Certificate of Incorporation  

A Toronto-based business that chooses to incorporate provincially will need to liaise with Service Ontario. 

The incorporator will complete the government's Form 1 in duplicate with original signatures on both copies.  (Form 1 is issued by the Minister of Government and Consumer Services pursuant to the Regulations to the Business Corporations Act.)

The incorporator will also obtain and provide to the government an Ontario-biased NUANS name search report. 

Unless this documentation is not in order, the government will then issue the corporation's Articles of Incorporation. The Articles of Incorporation include the company's Certificate of Incorporation. As such, the Certificate of Incorporation indicates that the application for incorporation has been approved by the provincial government.  

The Certificate of Incorporation issued to an Ontario corporation will indicate its date, the corporation's Ontario corporate number (OCN), and the corporation's complete name. 

Federal Incorporation: Certificate of Incorporation  

A business that chooses to incorporate federally will receive this documentation from Corporations Canada, which is a division of Innovation, Science and Economic Development (formerly known as Industry Canada.) 

After filing the necessary application and NUANS report and assuming that nothing is amiss, the business will receive its Articles of Incorporation (i.e., the "Federal Articles of Incorporation".)

Federal Articles of Incorporation will include:

• Corporate Information Sheet,
• Certificate of Incorporation,
• Form 1,
• Form 2.

The Federal Certificate of Incorporation will include the date of incorporation, a uniquely assigned corporation number, and the full name of the corporation.

Bottom line

Questions about the Certificate of Incorporation come up from time to time. In fact, there is some unnecessary confusion about what exactly the Certificate of Incorporation represents. In this post, I have outlined how the Certificate of Incorporate represents the crystallization of the first step in a two step process.

After the incorporator obtains the Certificate of Incorporation, there is still a need to carry out the second step. Otherwise the business is not properly incorporated. 

Hey guys! Today's post will cover some more details you might want to consider before selecting a corporate name.

I am a lawyer and have been doing this for more than ten years. I have had the privilege of working with various corporate actors, and that includes incorporators and founders.

Last year, when we first got locked down, I was of course a bit shocked. As time goes on, I started thinking about how I can give something back to our community. One idea was to create this blog as a source of credible, reliable information. In particular, I hope that this first set of blog posts is helpful for guys (and girls) who may be first-time entrepreneurs.

A few weeks ago, my post introduced the two most important things you absolutely must know about corporate names. Today's post is going to go into more detail. By the end, you will be ready to pull the trigger.

It's all good, man. Let's do this.

Looking for More Details about Corporate Names?

Incorporation is a powerful legal structure. As an entrepreneur in Toronto, you have the choice between federal and provincial incorporation.

In either case, the corporation can be either named or numbered. A corporate name has three essential elements. In today's post, we are going to go into more detail about these three elements, which are

• distinctive element
• descriptive element
• legal element

Does Your Corporate Name Have a Distinctive Element?

A corporate name must have a distinctive element.

The distinctive element identifies the business through a distinctive word or set of words. There is going to be a spectrum between the highly distinctive and the less distinctive. A coined or made-up word is likely to be highly distinctive. A person or place name is likely to be less distinctive. 

Let's consider a hypothetical named company called Yellowbird Consulting Corp. 

The word 'Yellowbird' is the distinctive element in this corporate name. Yellowbird is not at the extreme end of the highly distinctive continuum. It could be made more distinctive by using synonyms, such as 'Goldenbirds'; but, then again, it is more distinctive than simply 'Yellow.' 

For a few more thoughts on this balancing act, see 'Your Corporate Name Must Be Unique' below.

Sufficient distinctiveness is one consideration. At the same time, the word or set of words used for your distinctive element is going to be an important part of the brand that the corporation builds around its business. 

Does Your Corporate Name Have a  Descriptive Element?

A corporate name also should have a descriptive element. 

The descriptive element indicates the main activities or type of business in which the corporation is engaged.

Let's go back to the example of Yellowbird Consulting Corp. 'Consulting' is going to be the descriptive element in this corporate name. The incorporator could just as well use words such as 'Advising' or 'Counselling'.

Does Your Corporate Name Have a  Legal Element

Finally, a corporate name must have a legal element. This is also referred to as a corporate suffix. 

Because corporate names can be in either French or English, there are two sets of corporate suffixes that are available. The first set is English, i.e.,  Limited, Ltd., Incorporated, Inc., Corporation, Corp. The second set is French: Limitée, Ltée, Incorporée, Inc., Corporation, Corp.

The incorporator therefore has a total of 12 legal identifiers to choose from. But, once a specific suffix is registered with the corporate name, the expectation is that only that suffix gets used.

So, for example, 'Corp.' is the corporate suffix in Yellowbird Consulting Corp. It would be incorrect to refer to this corporation as Yellowbird Consulting Incorporated or Yellowbird Consulting Corporation. 

Your Corporate Name Must Be Unique

Now that you have put together the three required elements, you are going to want to check that your name is unique.

You do this by obtaining a name search report, which is often referred to as a NUANS report. NUANS refers to a specific, commercial database of corporate names. 

The report consists of the results of a search where your proposed name is put into the database, and the most similar existing, registered names are displayed.

Let's look at this in terms of the hypothetical of 'Yellowbird Consulting Corp.'

It may well be that there are already registered corporations in Ontario that have the distinctive element 'Yellowbird', e.g., "Yellowbird Dynamics Incorporated". In that case, generally speaking, Yellowbird Consulting Corp. and Yellowbird Dynamics Incorporated are sufficiently different that Yellowbird Consulting Corp. would still be considered unique.

If, however, the name search report indicates that there is already a registered corporation with the name "Yellowbird Consulting Corporation", well then you are out of luck. Why? Because Yellowbird Consulting Corp. and Yellowbird Consulting Corporation are sufficiently similar that Yellowbird Consulting Corp. would not be considered unique. 

The Takeaway

There are other rules against obscene names. Also, this being Canada, there is a rule stipulating that a corporate name must not imply a connection to the royal family.  

The basic principle is that a corporate name has three parts and that it must be distinct.  

That is all, Folks

Thanks for reading today's post. I hope it helped you feel more confident about the details of selecting a corporate name.

Hey guys! Today's post is going to introduce two things you absolutely need to know before selecting a corporate name.

I am a lawyer and have been doing this for more than ten years. I have had the privilege of working with various corporate actors, and that definitely includes incorporators and founders. 

Last year, when we first got locked down, I was of course a bit shocked. As time goes on, I started thinking about how I can give something back to our community. One idea was to create this blog as a source of credible, reliable information. In particular, I hope that this first set of blog posts is helpful for guys (and girls) who may be first-time entrepreneurs. 

We have been working to churn out these posts for a few months and I am glad that some people are finding the blog useful. A few posts have talked about corporate names. So, I wanted to just introduce a couple basic but important points today. 

If you are looking at naming a corporation and are feeling a bit lost, well then you have come to the right place 

Its all good, man. Let's do this. 

What You Really Need to Know about Corporate Names

Incorporation is a powerful legal structure. It has both legal advantages -- think limited liability -- and potential business advantages, such as the opportunity to build an enduring brand. We have written a whole post about the leading theories for why a corporation is granted a separate identity as a legal person. 

The bottom line is that a corporation is a separate person and it therefore has to have its own specific name. As a first-time entrepreneur, you might have questions about this, you might be wondering whether there are things you have to do or have to avoid in selecting a name. We are going to get into that here. 

Specifically, in this first post on the topic I am going to keep things simple. That means we will be passing along the two things that you absolutely have to understand about corporate names.

1. A corporation can be either named or numbered
2. A corporate name has three essential elements. 

Point 1: Numbered or Named

The federal and provincial governments share jurisdiction over business corporations. To make a long story short, the result is that an entrepreneur in Toronto gets two choices. You may choose

• to incorporate federally under the Canada Business Corporations Act (CBCA); or
• to incorporate provincially under by the Ontario Business Corporations Act (OBCA).

We have compared the key considerations elsewhere, but in either case the corporation must identify itself via either a number or a name.

You may have heard the term numbered company, this simply refers to a corporation that has decided to not use a corporate name.  If you incorporate a numbered company, the registry will assign a number followed by the appropriate legal designation.

If you choose to incorporate as a numbered company, and later want to use a corporate name, that is definitely possible. 

The only alternative to a numbered company is a named company. Furthermore, if you choose to incorporate a named company, the corporate name must be distinct have three essential elements. This brings us to point 2.

Point 2: A Corporate Name has Three Essential Elements

A named company has a corporate name that has been chosen by the incorporator, for example Yellowbird Consulting Corp.

When choosing a corporate name you need to satisfy the requirement for three specific elements 

• a distinctive part, e.g., 'Yellowbird'
• a descriptive part, e.g., 'Consulting' and
• a corporate suffix, e.g., 'Corp.'

Let's just briefly, explain the above. Yellowbird is the distinctive element that promotes the corporation's brand. Consulting is the descriptive element describing the nature of the business. And, Corp. is the corporate suffix.  

Looking for More Details?

Today's post was aimed at sharing the most important points about a frequently asked question.

I'm going to be putting together a more detailed post and will post a link here.

Also, if you are looking for more details about the whole process of incorporating, we have put together a Guide that you can use. It's free and is coming soon. Keep an eye open for that

That is all, Folks

Thanks for reading today's post. I hope it helped you feel more confident about the basics of choosing a corporate name.

Hey Guys! Today’s post is gonna compare provincial incorporation versus federal incorporation for entrepreneurs in the GTA.

I am a lawyer and have been doing this for more than ten years. I have had the privilege of working with entrepreneurs in a wide variety of industries. (It is actually one of the best parts of this job.) 

Last year, when we first got locked down, I was of course a bit shocked. As time goes on, I started thinking about how I can give something back. One idea was to create this blog as a source of credible, reliable information. In particular, I am hoping that this first set of blog posts are helpful for guys (and girls) who may be first-time entrepreneurs. 

It’s all good, man. Let’s do this!

Provincial Incorporation Versus Federal Incorporation 

In Canada, our federal and provincial governments have concurrent jurisdiction over business corporations. To make a long story short, the result is that entrepreneurs in Toronto are free to choose between incorporating federally or provincially.

A federal corporation will be governed by the Canada Business Corporations Act (CBCA). Meanwhile, a provincial corporation in Ontario will be governed by the Ontario Business Corporations Act (OBCA). 

These two pieces of legislation are, to be frank, very similar. (In fact, the OBCA was modeled after the CBCA in order to promote corporate law coherence.) As a result, the differences between provincial and federal incorporation are relatively minor.

Today’s post is going to break down some of key considerations, especially: 

• Geography of operations, 
• Location of shareholders and directors
• name availability, and 
• Administrative cost and timing

Consideration 1: Where is the Business going to Operate

To get started, it makes sense to consider whether the business is going to operate only in Ontario, or in a wider swath of our vast country. 

A corporation established under the federal  Canada Business Corporations Act is automatically entitled to operate in all ten Canadian provinces. But, a corporation established under a provincial corporate law statute, such as Ontario' s Ontario Business Corporations Act, does not automatically enjoy this privilege.

As a result, an Ontario corporation will need to register in any other province in which it intends to operate.

Likewise, a non-Ontario provincial corporation should file certain additional paperwork before operating in Ontario. Specifically, we have the Extra-provincial Corporations Act in Ontario. It requires that a licence is required to do business in Ontario if a corporation was incorporated elsewhere. These are given out as a matter of course. 

A federal corporation may establish its business operations and market itself across Canada. For this reason, some business people prefer federal incorporation when they intend to establish a physical presence across Canada.
 

Consideration 2: Where are the Shareholders (and Directors) Going to be Located?

The founding shareholders will also want to think about where the corporation's shareholders will be physically located.

One reason is that both statutes require annual shareholder meetings as well as annual directors meetings.

There is an important difference between the two Acts, however, that we can examine by way of shareholders meetings.

You will want to think about whether it is going to be feasible for, for instance, the shareholders to be "present" in a single location for the annual shareholders meeting. Even if gathering for an in-person meeting is not practical, the corporation still has an obligation to hold an annual shareholders' meeting. In this respect, questions arise such as can the shareholders meeting be held online?

Ontario Corporations are generally thought to be able to hold an online shareholders meeting so long as the communication mechanism being used provides a means for the shareholders to vote. This is a general statement and will depend on a variety of specific factors.

However, under the CBCA the requirements for holding online meetings are more restrictive. Under the CBCA, an online shareholder meeting can only be held if the corporation's bylaws expressly permit it and the relevant communication mechanism used permits all participants to communicate adequately with each other during the meeting.

Without going into extraneous hypotheticals, the simple take-away is that incorporation under the federal statute may make virtual shareholders meetings more difficult. 

Consideration 3: Name Availability and Protection

The corporate name may be one of the reasons why an entrepreneur wants to incorporate in the first place. First, doing business as a corporation carries a certain amount of prestige. Second, the corporate name is protected in the jurisdiction in which it is registered.  

Provincial incorporation means that the corporate name is protected only within that province. Federal incorporation results in wider name protection. Once the corporate name is approved by Industry Canada, it is protected throughout Canada and all of its provinces and territories.

The flip side of greater name protection for federal corporations, is that the federal government imposes a stricter and more time consuming process for name selection. In order to incorporate a named corporation under the federal statutue, the incorporator must purchase something called a 'NUANS report'. This is a proprietary search on a database that is maintained of registered corporate names throughout Canada. 

Not only does the founder of a federal corporation need to obtain the NUANS report, the report has to be inspected and approved by Industry Canada. (Talk about government red tape!) 

In Ontario, the process is slightly lighter on bureaucracy. The onus is placed on the incorporator to ascertain that the corporate name complies with the statutory requirements and is distinct. 

 On balance, this consideration usually leans towards choosing to incorporate provincially. 

Consideration 4: Administrative Cost and Timing

So far, we have covered one consideration where federal incorporation has a clear advantage and two other considerations where the comparison is usually favorable to provincial incorporation. Let's look at a fourth consideration: what is going to take to get incorporated in terms of both time and cost.

The previous section talked about the federal government's bureaucracy heavy approach to corporate names. This is one of the factors that results in federal incorporation often being more time consuming.

While provincial incorporation is usually going to be faster than federal incorporation,, federal incorporation is going to have a smaller financial cost. Incorporating a business with Industry Canada under the Canadian Business Corporations Act costs $200 when done online. The alternative is going to Service Ontario's online portal and paying $350. 

Federal vs Provincial Incorporation: The Winner?

Guys, as you can see, there is no knock-out winner in this battle.

Federal incorporation and provincial incorporation are both very similar when it comes to the laws that regulate them. However, if your corporation intends on operating its business across Canada then federal incorporation gets the nod because of its automatic entitlement to operate in all ten provinces and three territories. 

Overall, it is good to keep things simple unless you have specific reasons for incorporating federally then the standard practice would be setting up an Ontario corporation under the provincial act.

In any case, there are variety of factors to consider and it is best practice to discuss any specific issues with a lawyer. 

Hey Guys! Today’s post is gonna contrast incorporation versus business partnerships in Ontario.

I am a lawyer and have been doing this for more than ten years. I have had the privilege of working with entrepreneurs in a wide variety of industries. (It is actually one of the best parts of this job.) 

Last year, when we first got locked down, I was of course a bit shocked. As time goes on, I started thinking about how I can give something back to our community. One idea was to create this blog as a source of credible, reliable information. In particular, I am hoping that this first set of blog posts are helpful for guys (and girls) who may be first-time entrepreneurs. 

It’s all good, man. Let’s do this!

Incorporation Versus Business Partnership 

There is a joke that lawyers love to say 'it depends.' While it's not especially funny (am I missing something?), it is true. The best vehicle for taking your business to the next level will depend on your circumstances and the facts of your business.  

Incorporation is a powerful legal structure that works well for many entrepreneurs. It has both legal and business advantages. If your business can afford the associated costs (in terms of both time and money), then yes, by all means, go ahead and incorporate.

Let's dive in a little deeper. 

Suppose there is more than one owner of the business. In that case, the natural alternative to incorporation is going to be a business partnership.  

What is a business partnership?

The word partnership gets used in various contexts within the law. For instance, of course, there is the notion of a domestic partnership. In fact, the world of business affairs is the original context for the law's use of the term partnership. 

A business partnership can be understood simply as two or more people carrying on business in common with a view to profit.  This means that ownership and, unless specified otherwise, management of the business is shared between two or more persons. 

Section 2 of the Ontario Partnerships Act, puts the matter in more technical terms:

"Partnership is the relation that subsists between persons carrying on a business in common with a view to profit, but the relation between the members of a company or association that is incorporated by or under the authority of any special or general Act in force in Ontario or elsewhere, or registered as a corporation under any such Act, is not a partnership within the meaning of this Act." 

In fact, three types of business partnerships are possible in Canada. They are a general partnership, a limited partnership, and a limited liability partnership. 

The general partnership is the most common type. For that reason, today's post is only going to consider the general partnership.  

In the following, I am going to compare three features of the corporation and a business partnership 

• Limited Liability
• Flexibility
• Tax treatment

Ill also briefly address a bonus, fourth point of comparison. 

As the big homie Freddy Mercury liked to say: “The Show Must Go On.” …. Let’s do this. 

Feature 1: Limited Liability

At law, a corporation is a separate entity from its owners. 

The corporation's separate legal identity results in limited liability for its owners. A corporate shareholder has limited liability because his financial liability is limited to whatever amount he has invested in the corporation's share capital.  Put more simply, the most the shareholder can lose is whatever he (or she) has put into the corporation. Even if the corporation goes into debt and is ultimately unable to pay back its creditors, those creditors will not be able to go after the shareholder's personal assets.

In contrast, a business partnership does not enjoy legal personhood. It is therefore not separate, at law, from its owners.  The result is unlimited liability, which is the most severe disadvantage of doing business as a partnership.

The owners of a business partnership are personally liable for the business' obligations.  This means that if  the partnership incurs debt, each owner will be personally liable to re-pay all of the debts. As a result, the business' creditors can and will go after the partners’ personal assets. (An exception is the Limited Partnership. We will discuss the Limited Partnership in another post, but it is generally not relevant to first-time entrepreneurs.)

This difference between limited liability and personal liability is the first point of comparison between a corporation and a business partnership.

Feature 2: Tax

A corporation is a separate and distinct legal person. As a result, a corporation must file its own annual corporate income tax return. The Canada Revenue Agency (“CRA”) refers to this as a T2. 

To file a T2 with the CRA, a corporation’s accountant will need to prepare thoroughgoing financial statements. Also, there are administrative requirements directly related to the preparation of the T2, such as maintaining a corporate minute book in case the CRA decides that an inspection is needed. Therefore, a corporation is not going to provide its owner with tax simplicity. 

But, the corporation does provide the opportunity for tax savings. The possibility of tax savings that can be achieved through incorporation will primarily take two forms:

• small business deduction  

• lifetime capital gains exemption

The small business deduction will apply to the first $500,000 of corporate income each year. It results in effectively lowering the corporation’s tax rate to about 12.5% in Ontario. The lifetime capital gains exemption kicks when you sell shares of your business. In that case, you may be able to personally take slightly less than $900,000 out of the corporation tax free. (There are  going to be eligibility criteria to understand about both of these programs.)

The key point is simply that these mechanisms for achieving tax savings are available to corporations.

In contrast, a business partnership is not a legally separate entity from its owner. This is going to result in greater tax simplicity but less scope for tax savings. 

In short, the business partnership will not file its own tax return with the CRA. Instead, the partnership's profit will go directly to the partners as income. The partners, i.e., the business’ owners, will then include that income on their personal tax return with the CRA, i.e. on his T1.  The income is then taxed, all other things being equal, at the higher rate for high-income individuals. 

Therefore, tax-treatment is another significant difference between a corporation and a business partnership.  

Feature 3: Flexibility

Incorporation creates a structure that is both flexible and potentially dynamic. Let’s look at a few ways in which this flexibility manifests. 

As I’ve written elsewhere, the corporation has multiple actors with distinct responsibilities. Shareholders collectively own the business, but they do not directly make strategic business decisions. Instead, shareholders must elect at least one director - or a board of directors - who make these decisions and monitor their execution. In turn, the board appoints senior management, i.e., “officers”, who run the day-to-day business.  

A major consequence of these differentiated roles is that a corporation can issue shares, even when the investors are strangers. The added layers of accountability built into a corporation make the corporation the preferred business structure of most investors. In turn, the prospect of diffusing ownership makes the corporation especially attractive for entrepreneurs who intend to raise equity financing.

The partnership, however, is a different story. A typical scenario is that each partner might bring a complementary skill set . For instance, one partner might focus on customer acquisition while the other handles the product’s technical details. Another common albeit more sophisticated permutation of the partnership is that one partner brings financial horse-power while other partners bring technical expertise -- this is the basic model of a hedge fund! 

Whatever the division of roles in a partnership, it will result in an organization that is ‘flatter’  than a corporation. It is also historically thought to be more difficult for a partnership to raise external investment. Whether you go with a partnership or corporation will in part depend on whether you embrace a professional approach to management. Even if you stick with a partnership, it is recommended to plan ahead through a partnership agreement.

Feature 4 -- Bonus: Less Up Front Cost

So far, we have covered two features where the comparison is almost always favorable to the corporation and a third where the corporation usually comes out ahead. Let’s also consider a factor that, on balance, points towards the business partnership as a desirable structure for new businesses. 

Simply put, there will be less up-front cost and less need for outside service providers if you choose to do business through a partnership. 

In my experience, this San Francisco-based lawyer puts the matter very clearly: 

It is noteworthy that while the advantage of the limited liability entities are clear both in terms of limited risk and tax planning, most businesses in the United States are either sole proprietorships or partnerships. The reasons for this are usually based on the way most businesses get started. Quite often family members simply combine in a business thus forming a defacto oral partnership and especially at the commencement of business, taxes are not critical (since little money is made) and limited liability not a major concern since there often are few assets owned by the original owners to protect.  …. 

Nevertheless, besides the up-front cost savings associated with a partnership, there are also convenience advantages associated with the partnership. In short, a partnership will be less regulated than a corporation. 

Bottom Line

Overall, the winner is the corporation. Incorporation can be a powerful vehicle for taking your business to the next level. But, there are certain circumstances where a partnership might be most appropriate.  

Hey Guys! Today’s post compares incorporation vs sole proprietorship in Ontario.

I am a lawyer and have been doing this for more than ten years. I have had the privilege of working with entrepreneurs in a wide variety of industries. (It is one of the best parts of this job.)

Last year, when we first got locked down, I was, of course, a bit shocked. As time goes on, I started thinking about how I can give something back to our community. One idea was to create this blog as a source of credible, reliable information. In particular, I hope that this first set of blog posts is helpful for guys (and girls) who may be first-time entrepreneurs.

It’s all good, man. Let’s do this!

Overview: Incorporation versus Sole Proprietorship 

There is a joke that lawyers love to say 'it depends'. While it's not especially funny (am I missing something?), it is true. The best vehicle for taking your business to the next level will depend on your circumstances and the facts of your business.  

Incorporation is a powerful legal structure that works well for many entrepreneurs. It has both legal and business advantages.  

BUT, starting and maintaining a Canadian corporation may be outside of your budget when first starting up. Just because the corporation is a good option in many cases does not mean that it is the best option in all cases. 

Let's dive in a little deeper. The most obvious alternative to incorporation is simply using a sole proprietorship. In the following, I am going to compare three features of the corporation versus the sole proprietorship

• Limited Liability
• Tax treatment
• Branding

As the big homie Freddy Mercury liked to say: “The Show Must Go On.” …. Let’s dive into some details. 

Feature 1: Limited Liability

At law, a corporation is a separate entity from its owners.

The corporation's separate legal identity results in limited liability for its owners. A corporate shareholder has limited liability because his financial liability is limited to whatever amount he has invested in the corporation's share capital. Put more simply, the most the shareholder can lose is whatever he (or she) has put into the corporation. Even if the corporation goes into debt and is ultimately unable to pay back its creditors, those creditors will not go after the shareholder's personal assets.

In contrast, a sole proprietorship is not a legally separate entity from its owner. The owner of a sole proprietorship is personally liable for the business's obligations. If your business incurs debt, you are personally liable to re-pay those debts. As a result, the business' creditors can and will go after the sole proprietor's personal assets. 

This difference between limited liability and personal liability is the first point of comparison between a corporation and a sole proprietorship. 

Feature 2: Tax Treatment

A corporation is a separate and distinct legal person. As a result, a corporation must file its own annual corporate income tax return. The Canada Revenue Agency ("CRA") refers to this as a T2.

To file a T2 with the CRA, a corporation's accountant will need to prepare thoroughgoing financial statements. Also, there are administrative requirements directly related to the preparation of the T2, such as maintaining corporate books in case the CRA decides that an inspection is needed. Therefore, a corporation is not going to provide its owner with tax simplicity.

But, the corporation does provide the opportunity for tax savings. The possibility of tax savings is going to be especially relevant if the corporation is profitable or at the very least has significant cash flow. For example, a corporation with several hundred thousand dollars of income will pay a much lower tax rate than a person with equivalent income would pay.

In contrast, a sole proprietorship is not a legally separate entity from its owner. This is going to result in greater tax simplicity but less scope for tax savings.

In short, the sole proprietorship will not file its own tax return with the CRA. Instead, the sole proprietorship's profit will go directly to the proprietor as income. The individual entrepreneur will then include that income on his tax return with the CRA, i.e., on his T1. The income is then taxed, all other things being equal, at the higher rate for high-income individuals.

Therefore, tax-treatment is another significant difference between a corporation and a sole proprietorship.

Feature 3: Branding

Sometimes the perceived prestige of a corporation is attractive, especially if your business relies on its brand. Here are a couple, specific legal considerations related to branding.

Naming. One of the first documents that is created when you incorporate is a name search. The details of the name search will differ slightly depending on whether you incorporate federally or provincially. The key point is this: once you incorporate, your corporate name goes into a database. In this respect, your business name is protected. 

When you register a sole proprietorship, you are registering the name you use to do business. The government does not, however, guarantee that you have exclusive use of the name. Furthermore, there are certain kinds of business names that can not be registered under a sole proprietorship. For instance, a sole proprietorship can not register John Smith Painting Co. because “Co.” indicates that the business is a corporation. 

Perpetual existence. Furthermore, because a corporation is a distinct legal entity, it enjoys perpetual existence. The result is that if something unfortunate happens to the founding shareholder, the corporation will continue to exist. On the other hand, a sole proprietorship will cease to exist upon the death of its proprietor. As a result, a sole proprietorship lacks permanence and may be less suitable for building a long-term brand.

And The Winner is ...?

I get asked about alternatives to incorporation fairly regularly. The above compared three specific features of the corporation against the sole proprietorship. There are, however, other features that a responsible entrepreneur will want to consider in comparing these two solutions for doing business in Ontario.

As already noted in this post and elsewhere on the blog, the corporation is a powerful legal structure. Suppose you are serious about running a successful business. In that case, you are going to gradually ‘transform’ from an entrepreneur into an executive. It is highly likely that you and your business will make use of the corporate form along this path.

Starting your own business is already a big step. Incorporation is that much more serious. If you want to know more about starting and maintaining a corporation, you are not alone. It turns out that a lot of guys are wondering about this topic.

Some of these guys have been writing to ask for more information. I am here to be a resource. I’ve put together a guide. The guide is more than 40 pages long -- yeah, its probably too long -- and it is 100% free.

In any case, the best vehicle for taking your business to the next level is going to depend on your own personal circumstances and the facts of your business. There are certain circumstances where a sole proprietorship might be most appropriate. For example, a sole proprietorship might be the best fit for an entrepreneur who is the sole owner of their business and has less than one hundred thousand dollars of annual business income.

Bottom Line

It really does depend on your personal circumstances and the facts of your business: the best vehicle for taking your business to the next level is going to depend on your own personal circumstances and the facts of your business.  

Incorporation entails extra work and extra costs. If your business is just getting started, then the sole proprietorship might be good enough. As your business grows, you can always incorporate.

Hey Guys! Today's post is going to review legal structures that are available for entrepreneurs in Ontario. 

I am a lawyer. I have now been doing this for more than ten years.

Over these ten years, I have had the privilege of working with numerous entrepreneurs and their business structures, including sole proprietorships, partnerships, and corporations.   

Last year, when we got locked down, I was shocked. Then, I started thinking about how I can contribute to this society without going outside. One idea was to create this blog as a source of credible, reliable information. In particular, this first set of blog posts aims at being a resource for guys (and girls) who may be first-time entrepreneurs. 

It's all good man. Let's do this. 

The Big Three 

Today's post reviews the three most relevant structures for guys (or girls) who are just getting started in their own business. 

With a few caveats for regulated services and industries, there are basically three structures that people use to do business in Canada: 

• a sole proprietorship; 
• a partnership; and
• a corporation.

Is it absolutely necessary to use one of these three forms? No. Is it somehow illegal if you do not use one of these three forms? No, not necessarily. But, with all due respect, those questions would just be a distraction. 

The point is nothing more and nothing less than this: there is a "Big 3" of business structures: the sole proprietorship; the general partnership, and the corporation. 

Especially if you are just getting started on your entrepreneurship journey, it really does help to have a clear sense of the basics. (Once there is significant cash-flow and your business team gets bigger, that is when you are going to start customizing one - or more than one - of these basic structures.) 

The reality is that a first-time entrepreneur is incredibly unlikely to need to do business through a cooperative, for example. (A cooperative is simply not going to be the right structure for an early-stage business run by a single entrepreneur or a small team. For that reason, I am not going to cover it here.)

Corporation (Provincial or Federal)

At law, a corporation is a separate entity from its owners.

We have blogged three theories about why corporations have a separate legal existence. The bottom line, tho, is that Canadian courts are respectful of the corporate form. They will 'pierce the corporate veil' only in exceptional circumstances. Thus, it is correct to say that a corporation and its owner(s) have separate legal identities. 

The corporation's separate identity results in limited liability for the owners. Put very simply,  the most the shareholder can lose is whatever he has put into the corporation. Limited liability is a major advantage of the corporate form. It applies to both financial and legal liabilities. 

Another key feature of a corporation is the expansive range of activities that a corporation can participate in. Canadian law adopts a liberal approach to corporate acts: a corporation is a legal person.  It can enter contracts and own property. It can sue or be sued. It can lend money, borrow money, and buy insurance. (If the founder of a corporation today wants to limit its activities, they can do so in the Articles of Incorporation.)

The corporate structure facilitates multiple owners.  It is also relatively easy to transfer ownership by selling shares to another businessperson or back to the corporation. Corporate shares are also significant if you intend to raise money from investors. (Without incorporation, the business will simply not be able to issue shares to potential investors.)

It is also essential to think about the tax consequences of incorporation.  In Canada, the simple truth is that corporations' tax rate is lower than the tax rate on individuals. The government also makes various tax reductions available to small businesses only if they are incorporated. 

Sole Proprietorship

A sole proprietorship is a business owned and operated by a single individual. 

A sole proprietorship can do business under the owner’s name or under a trade name that the owner has chosen (subject to certain limitations.)  

The rules for a sole proprietorship will vary slightly depending on the province or provinces in which you intend to carry out business. The following goes through three potential advantages with particular attention to our situation in Ontario.  

One of the most significant advantages of a sole proprietorship is that setting up and administering the business is comparatively easy. In Ontario, for example, you simply fill-in an online form and pay a de minimus registration fee. (You will probably also want to register for HST.) 

It is also going to be less expensive to operate a sole proprietorship, as compared to, for example, a corporation. For instance, in 2021, the basic fee to incorporate in Ontario is $360. You will need will also need to have a name search report that costs approximately $20. Moreover, the record-keeping and meeting requirements associated with running a corporation will create costs. 

Another key feature is that the sole proprietorship itself does not pay income tax. Instead, As a sole proprietor, you declare your business income on your personal income tax form. 

The flip side of these advantages is that the sole proprietorship does not enjoy a separate legal identity, which means personal liability. 

Partnership

Canadian law recognizes three types of business partnerships. We are focused on the general partnership because it is the most relevant for first-time entrepreneurs. 

A general partnership is a business arrangement between two or more individuals who share the business's profits and liabilities. 

In a general partnership, each partner is fully personally liable for the debts, contractual obligations, and torts resulting from the partnership's operation, just as in a sole proprietorship. 

Personal liability applies to both financial and legal liabilities. Suppose you are a partner in a general partnership that incurs debts. In that case, the business' creditors can and will seek to collect from you personally. You could also be brought in to litigation relating to something that happened in the business or even something done by one of your partners. 

As in the case of a sole proprietorship, the natural persons who own the partnership and the partnership itself are not legally separate entities. Because the partnership is not a separate entity, you will not have statutory meeting or record-keeping requirements. Also, like with a sole proprietorship, the profits - or losses - of the partnership will flow to the individual partners as business income. For these reasons, it will generally be less expensive to administer a partnership than a corporation.

As you can see, a partnership has some of the same characteristics of a sole proprietorship. But, because it is inherently going to involve more than one person, there is added complexity. Specifically, a partnership should have a partnership agreement 

Tips for Choosing Your Business’ Structure

We have now reviewed the corporation, the sole proprietorship, and the business partnership. 

But, which one is right for you and your business? The right structure is gonna depend on you and your business, and the following is no way legal advice. 

Here I want to share a couple tips, let’s call them key considerations, for identifying your best choice. 

What Do You Want, Do you Want a Separate Legal Identity?

How important is it for your business to have a separate legal identity from that of the owner or owners? Your answer to this question is going to be important. Your response will probably depend on both the circumstances of the business itself and those of the owner(s). 

For example, suppose the business already has significant revenue. In that case, it may well be imperative for the business to establish a separate legal identity. Likewise, imagine the business is operating in an industry that is inherently risky, such as construction. Then it may well be crucial for the business to establish a separate legal identity.

Furthermore, the circumstances of the owners are also important. Suppose that some of the owners are only going to be involved passively, and may eventually want to sell their ownership interest. Then again it probably makes sense to think seriously about establishing a separate legal identity for the business, i.e., through incorporation. 

Team of Entrepreneurs or Rolling Solo: Who Owns and Runs Your Business? 

Another consideration is whether there is more than one owner of the business. If there is more than own person who is investing in the business, then sole proprietorship is not going to be appropriate. You are instead looking at either a corporation or a partnership. As we noted above, in the case of a partnership businessmen who are serious are going to want to use a partnership agreement. Here I just want to add that a lawyer should be brought into properly draft the partnership agreement. 

A partnership agreement will cover a wide range of issues, such as the investment that each partner is making in the business, each partner's role in the business, a plan for any eventual dissolution of the partnership, and etcetera. Prior to executing the partnership agreement the partners should have had an opportunity to receive their own, independent legal advice. In this respect, the partnership is going to achieve some but not all of the benefits of the corporation. In particular, it is going to play a role in coordinating the activities and expectations of multiple actors in the business. 

For the Love of God, Please Do Not Forget about Tax 

You know the old joke. There are only two things that are certain in life: death and taxes.

I am not an accountant (thank G*d). Still, I can definitely tell you from personal and professional experience that you overlook your business's tax consequences at your peril.

Here let me drop a couple of points about the corporation. The simple truth is that, yes, corporate tax rates are lower than individuals. The government also makes various tax reductions available to small businesses only if they are incorporated.

But, there is almost always a flip side: if all of the corporation's income immediately comes out in the form of dividends, then that money is still going to be taxed at the individual rate. So, the basic point is that the business needs cash-flow and a cushion that can be invested back in the business before any tax advantage is really going to kick in. Having made that basic observation, please do remember to get professional tax advice.

Bottom Line

Although the simple answer is not always the best answer, the simple answer is that the most powerful legal structure for Toronto entrepreneurs is incorporation.

A corporation provides limited liability, increased flexibility and attractiveness for raising money, and potential tax advantage as well as the opportunity to build a long-term brand. A few readers have asked for more information about incorporation. I am working on an "Ultimate Guide" (lol that is a joke. Shopify produces an "Ultimate Guide to Incorporation". I am never going to be as "Ultimate" as Shopify. So, my guide on this subject is just going to be called "A Lawyer's Realistic Guide to Incorporation")

It is a bit of work putting the guide together but hey it is all part of a bigger cause, right? So, yeah, the guide is going to be coming out in a few weeks. If you are serious about incorporation, please feel free to grab a copy, which will ultimately be linked below.

The corporation is not the only acceptable structure for you and your business. In Toronto (i.e., in Ontario), you also can do business as a sole proprietorship or as a partnership. Those structures are not going to offer limited liability but they do have their own advantages. For everything there is a place and a time.

Remember guys: it’s all good, man. Stay positive, stay focused on building your business, stay focused on building win-win relationships with those you are close to. If you have specific questions or topics that you would like to see covered in this blog, please do drop us a line.

Hey Guys! Today's post is going to cover the best alternatives to Incorporation. We are going to dive into this topic from the perspective of an entrepreneur in Ontario.

I am a lawyer. I have been doing this for more than ten years now. 

Over these ten years, I have had the privilege of working with numerous entrepreneurs and their businesses. (Working with people passionate about their business is probably one of the best parts of being a lawyer.) 

Last year, when we got locked down, I was shocked. Then, I started thinking about how I can contribute even if just a little bit while this society is still 'locked down.' One idea was to create this blog as a source of credible, reliable information. In particular, this first set of blog posts aims at being a resource for guys (and girls) who may be first-time entrepreneurs. 

Incorporation is a powerful legal structure that works well for some but not all entrepreneurs. It has both legal and business advantages. But, starting and maintaining a corporation may not be the best choice for you and your specific circumstances. 

Remember: It's all good, man. Let's dig into some details.

Sneak Peak: Big 3 but no LLC

Our previous posts reviewed the three main structures that entrepreneurs in Toronto use. These "big 3" business structures are: the sole proprietorship, the business partnership, the corporation. 

Now, Incorporation is a powerful legal structure. It has both legal and business advantages: think limited liability and the opportunity to create a brand. The corporation is going to work well for many entrepreneurs. Still, there are various reasons why you may want to avoid running your business through a corporation. For instance, the reality is that incorporating your business will mean more paper work, more regulatory responsibilities, and increased costs. 

The corporation is not the right fit for every business, and no one said it has to be. (I do get asked about alternatives to incorporation, and the previous blog post also touched on this topic.) So, today I want to share some additional thoughts. Of course, this is not legal advice. 

Can’t I Just use an LLC? 

In the US, there is a business structure called the LLC. The LLC is a company, but it is not a corporation. 

The LLC is often used when a business is first getting started. Our point is not to go into detail about the LLC. Rather, I want to be clear up-front: In Ontario there is no business structure that is strictly equivalent to the LLC.

Even without access to the LLC, tho, there are several options to consider for conducting business. This post runs through three structures that may be relevant and worth considering, i.e.: 

• Sole proprietorship
• Partnership
• Contractual joint venture

You are probably going to find that a partnership agreement works best in most cases. But, of course, it always depends on the specific circumstances of the entrepreneurs and the relevant facts at hand.

Sole Proprietorship  

If you just want to make your business a little bit more official. Then sole proprietorship can be a great solution. 

A sole proprietorship is a business owned and operated by a single individual. 

A sole proprietorship can do business under the owner’s name or under a trade name that the owner has chosen (subject to certain limitations.)  

The rules for a sole proprietorship will vary slightly depending on the province or provinces in which you intend to carry out business. (Unlike with a corporation, there is no option to register a sole proprietorship with the federal government). The next paragraphs go through three potential advantages of the sole proprietorship. They are based on our specific situation in Ontario.  

One of the most significant advantages of a sole proprietorship is that setting up and administering the business is comparatively easy. In Ontario, for example, you simply fill-in an online form and pay a de minimus registration fee. (You will probably also want to register for HST.) 

It is also going to be less expensive to operate a sole proprietorship, as compared to, for example, a corporation. For instance, in 2021, the basic fee to incorporate in Ontario is $360. You will need will also need to have a name search report that costs approximately $20. Moreover, the record-keeping and meeting requirements associated with running a corporation will create costs. 

Another key feature is that the sole proprietorship itself does not pay income tax. Instead, As a sole proprietor, you declare your business income on your personal income tax form. 

The flip side of these advantages is that the sole proprietorship does not enjoy a separate legal identity, which means personal liability. 

Furthermore, if your business involves more than one owner, then the sole proprietorship will be an unlikely choice. After all, by definition, a sole proprietorship can only be owned by a single individual. 

Partnership  

You may know that Canadian law recognizes three types of business partnerships. We are focusing on the general partnership because it is the most common type. 

A general partnership is a business arrangement between two or more persons who share a business in common. 

In general, each partner is fully, personally liable for the debts, contractual obligations, and torts resulting from the partnership's operation, just as in a sole proprietorship. This applies to both financial and legal liabilities. 

As in the case of a sole proprietorship, the natural persons who own the partnership and the partnership itself are not legally separate entities. Because the partnership is not a separate entity, you will not have statutory requirements for meetings or record-keeping. Like with a sole proprietorship, the profits - or losses - of the partnership will flow to the individual partners as business income. 

In light of the above factors, it is generally less expensive to administer a partnership than a corporation. 

As you can see, a partnership has some of the same characteristics of a sole proprietorship. But, because it is inherently going to involve more than one person, there is added complexity. 

Let's highlight one significant and foundational way in which the partnership differs from a sole proprietorship. 

A properly run partnership should have a partnership agreement. A partnership agreement will cover a wide range of issues, such as the investment that each partner is making in the business, each partner's role, an agreed upon plan for dissolution of the partnership, and etcetera.  

Let’s make a brief comparison to the LLC structure that is only available in the United States. One reason why the LLC has become so popular is that it provides clarity of expectations and roles for those involved. A properly drafted partnership agreement can provide some of these same benefits.

Joint Venture 

 A joint venture is an alliance between two or more persons who all agree to contribute to a shared 'venture,' i.e., a commercial enterprise. 

From a legal perspective, a joint venture is not the same 'animal' as a partnership. Let's briefly review two important aspects of a joint venture. 

First, a joint venture is fundamentally a contractual relationship. Second, a joint venture is a partnership-like relationship that is created for a single project. 

First, a joint venture is fundamentally a contractual relationship because it can only be created through the parties' agreement on due consideration. In contrast, a partnership can come into existence even if any alleged agreement between the parties would not be valid from the perspective of contract law.  Instead, in the case of a partnership, a  court will ask whether there was a sharing of profits and losses, joint administration and control of the business, capital investment by each partner, and common ownership of property. The court will also examine the intent of the parties. (Nevertheless, it is definitely best practice to use and negotiate a partnership agreement.)

Second, the parties to a joint venture agreement, i.e., the 'venturers,' come together for a particular project. The scope and terms of the project will be set out in their joint venture agreement. 

A joint venture is like a partnership but it has a narrower scope. Think about it this way: the members of a partnership have joined together to run "a business in common". In contrast, the joint venture's narrower scope means that the joint venture's participants do not run "a business in common."  (The joint venturers have merely *contributed* to a commercial enterprise in which they all have certain interests.)

The narrower scope of the joint venture has a range of consequences. For example, each party retains ownership of its property even if the property is being used in the joint venture's enterprise. In other words, the property is not being put into the joint venture but only used by the joint venture. 

Finally, for today, the skillful use of joint ventures can have significant commercial advantages. But, it is important to be aware that a joint venture creates fiduciary duties between the parties. 

Bottom Line

There is an old -- and not especially funny - joke that lawyers love to say ‘it depends.' In this case tho it really does depend. The best vehicle for taking your business to the next level is going to depend on your own personal circumstances and the facts of your business.  

But, as a general rule of thumb, if you have limited cash flow and you are the 100% owner of your business. There is nothing wrong with doing business through a sole proprietorship. 

On the other hand, it may be that there is more than one owner of the business. In that case, a partnership will be the natural starting point for thinking about how best to structure the business. It may be appropriate to skip the partnership agreement in certain circumstances and instead enter into a joint venture.  

Hey guys! In this post, we will dive into your questions about "should my corporation have directors."

I am a lawyer and have been doing this for more than ten years. I have had the privilege of working with various corporate actors, and that definitely includes dealing with corporate directors. 

Last year, when we first got locked down, I was of course a bit shocked. As time goes on, I started thinking about how I can give something back to our community. One idea was to create this blog as a source of credible, reliable information. In particular, I hope that this first set of blog posts is helpful for guys (and girls) who may be first-time entrepreneurs. 

The answer to today's question -- should my corporation have directors -- is both straightforward and deceptively complicated. Let's start with the simple answer: Yes, any corporation absolutely must have directors. There are no exceptions to this one!

And, what about the more complicated answer? Well, I am going to dig into that below. 

Its all good, man. Let's do this. 

What Role Do Corporate Directors Play? 

Incorporation is a powerful legal structure. It has both legal advantages -- think limited liability -- and potential business advantages, such as the opportunity to build an enduring brand. 

As a first-time entrepreneur, you might have questions about the role that directors play within the corporate structure. 

Yes, in some cases, a single person wears multiple hats, i.e., as shareholder, director, and chief executive officer. 

But, in all cases, a corporate director has specific functions and obligations under the law. 

If you are thinking about incorporating, you should understand these details. I am going to cover three points below

1. The corporation brings together multiple actors with distinct roles.
2. The directors are metaphorically akin to the corporate vehicle's driver.
3. Without directors, a corporation is not properly incorporated.

Point 1: Multiple Actors

We have already talked about how the corporation enjoys a separate legal identity. This separate legal identity can be helpfully described as a structure, or you might like to call it a frame.

The corporate frame needs to be filled by persons, i.e, actors. Inside the frame there will be at least three types of actors: the shareholder(s), the director(s), and the officer(s). 

Sometimes the actor can be either a natural person (a human being) or a legal person (such as a corporation). But, some roles can only be acted out by an actual human being. 

Both the directors and the officers must be natural persons, i.e., real human beings. 

Shareholders are entitled to vote on decisions that go to control of the corporation. However, they (the shareholders) are not necessarily entitled to decide the corporation's strategy. This role falls to the directors. Likewise, everyday business decisions are the responsibilities of corporate officers, such as the chief executive officer.

Point 2: Directors are the Corporate Driver

A director of a corporation is responsible for the overall performance of a corporation's business and must make strategic decisions. Concretely, directors have signing authority to make these decisions on behalf of the corporation. This allows the directors to make decisions on behalf of the corporation in a legally valid form.

More practically, the directors oversee management to ensure that the business strategy is properly executed. The directors are, therefore, the agents of the shareholders. (Future posts will discuss the principal-agent problem.)  

Metaphorically, you can say that if the corporation is a vehicle, then the directors are the driver. 

Or, the directors are like an airline pilot. The pilot, sitting in the cockpit, is operating at the 30,000 feet level. He oversees what is happening, takes in the big picture, and has the responsibility to change course when necessary.  

Point 3: A Properly Incorporated Corporation Needs Directors

Now Air Canada does not let you or me fly the plane when we buy a ticket. In the same way, even if the corporation has shareholders, it still needs at least one pilot, i.e. a director.

The process of incorporation has two steps. 

In the first step, the incorporator files for and receives the Articles of Incorporation. The incorporator may be either the founder shareholder of the corporation or an agent thereof.  

At this point, it would be a mistake to think that the corporation is constituted properly. There is still a second step that needs to be completed, and this second step requires at least one corporate director. 

During this second step, the corporation appoints the director(s). The second step also involves approving shareholders' and directors' resolutions that organize the new corporation's affairs. These resolutions serve to confirm the central tenets of the corporation's governance as required by law. Furthermore, in an Ontario corporation, certain paperwork must be returned to the Ministry within sixty days.

Still Looking for More Details?

The above was an attempt to simplify what is a complicated and at times confusing question. 

A few related issues definitely come up and you may have questions about: principal-agent problem within the corporation; directors' common law duties and statutory duties; corporate maintenance; and etcetera. Ill be adding more posts over the coming months. 

That is all, Folks

Thanks for reading today's post. I hope it helped clear up any questions about why your corporation definitely needs at least one director. 

Hey guys! In this post, we will dive into your questions about "who is the founder of a corporation."

I am a lawyer and have been doing this for more than ten years. I have had the privilege of working with a range of corporations, and that definitely includes dealing with corporate founders. 

Last year, when we first got locked down, I was of course a bit shocked. As time goes on, I started thinking about how I can give something back to our community. One idea was to create this blog as a source of credible, reliable information. In particular, I hope that this first set of blog posts is helpful for guys (and girls) who may be first-time entrepreneurs. 

This question -- i.e., who is the founder of a corporation -- is an interesting one. There is space for unnecessary confusion. Let me try to clear things up. 

It's all good, man. 

What You Will Learn Today

Incorporation is a powerful legal structure. It has both legal advantages -- think limited liability -- and business advantages, such as the opportunity to build a brand. 

As a first-time entrepreneur, you might have questions about how all of this works. There are many potential questions, and 'who is the founder of a corporation' is worth thinking about in detail. 

The identity of the founder is a bit confusing. Why? I think that this potential confusion boils down to two sets of overlapping terminology. 

We need to distinguish between the process of incorporating the corporation and the shareholders of the corporation. 

I am going to dive into three key details in this post. I hope it clears things up. 

Details 1: The Birth of the Corporation

You already know that the corporation is a separate legal entity. That sounds simple enough at first, but when you stop to think about it you might have questions about how exactly this separate legal entity comes into existence. 

Metaphorically speaking: how does the corporation go from being a glimmer in someone's eye to being a legal entity with rights and responsibilities? 

In Canada, it makes sense to think of the corporation's birth as divided in to two steps. 

In the first step, an application is made to a government Ministry. For example, in Ontario, a Form 1 is submitted to the Ministry of Government and Consumer Services. Provided that the contents of the Form 1 are not obviously out of order, the Ministry will issue a preliminary approval. 

At this step, the Ministry processes the content of the Form 1 into a new document. The new document is known as the corporation's Articles of Incorporation. 

In the second step, the corporation drafts initial shareholders' and directors' resolutions. These initial resolutions organize the corporation. They determine the corporation's key actors by electing directors, appointing officers, and issuing shares to shareholders. To use another metaphor: the corporate egg is being fertilized.   

In practice, Step 1 and Step 2 are connected. In fact, there is an unspoken assumption that the performance of Step 2 will immediately follow the performance of Step 1. 

(Put slightly differently, if only Step 1 is performed but Step 2 is ignored, then the corporation is in the world but is metaphorically living its life as a baby. A corporation that stays in this baby stage is, to be a bit crude, not going to be very useful. There is also a real possibility that sooner or later the government will forcibly dissolve the baby corporation.)

What does all of this mean for the identity of the founder? It means that, depending on the facts, there could be at least two founders. There is the founder from Step 1 who filed the Form 1. This person is also known as the incorporator. 

There is also the founder from Step 2, i.e., the founding shareholder or shareholders who first invested in the corporation's shares. Now, in some cases, the person who initiates Step 1 could be the corporation's founding shareholder, but this is not necessarily so in all cases. 

I am going to go through some points about the Step 1 founder and the Step 2 founder below. 

Feature 2: Who Can Act as the Incorporator?

The incorporator may be one of the initial investors in the corporation, but that is not always the case. The incorporator can also be a person acting in an agency capacity, i.e., as a service provider.

An incorporator may be, subject to certain limitations, either a natural person or a legal person such as another corporation. The legal criteria for who can act as the incorporator of a Canadian corporation are relatively liberal. In practice, it is common for service providers such as lawyers and specialized agencies to act as the incorporator. 

Whether or not you describe the incorporator as the corporate founder is really a matter of personal preference. As far as the law is concerned, the incorporator is the person who has brought the corporation into existence. But, it is also correct that this type of incorporator is distinct from a founding shareholder.

Feature 3: Founding Shareholder  

Just like there are rules about who can act as incorporator, there are also rules about whether an individual can act as both incorporator and founding shareholder. The following reviews a couple examples.

For instance, under Step 2 a corporation will need to elect directors, appoint officers, and issue shares. In some cases, the same person will serve in all three roles. 

But, this is only possible if the founding shareholder is a natural person.

Why? Because the directors and officers of a corporation must be natural persons. So, in the case that the incorporator and founding shareholder are a legal person, i.e. another corporation, then that corporation must have access to at least one natural person to serve as director and officer of the new corporation. 

Furthermore, an incorporator who intends to be the sole officer and director of the corporation as well as the founding shareholder should be a resident Canadian. Again, the reason for this statement is that the law sets out certain requirements for the number of non-resident directors and officers. 

Bottom line

The question of, i.e., who is the founder of a corporation, is an interesting one. Depending on the terminology that you choose to prioritize, there are two types of founders. 

On the one hand, the operator is practically responsible for bringing the corporation into existence. On the other hand, there is the founding shareholder. Sometimes the incorporator and the founding shareholder are the same person, but not always.