When you start a business, one of the first decisions you must make is whether to form a corporation or operate as a sole proprietorship. The costs and legal liabilities are somewhat different for each one.
Incorporating in Alberta is similar to the other provinces, with a few twists.
What does it mean to incorporate?
A corporation is a separate legal entity from its owners (also known as shareholders). It has the legal authority to:
- Buy and sell assets
- Operate a business
- Make contracts
- Sue
- Be sued
Lawsuits are one of the key differences between a corporation and a sole proprietorship. If you operate as a sole proprietor, you put your personal assets (such as your home and savings) at risk. If you are sued and the other party is successful in winning damages, these assets could be seized to pay for them.
On the other hand, if a corporation is sued only its assets, such as cash, land and equipment, can be claimed for damages. The shareholders do not have personal liability, although directors may be personally on the hook for unpaid wages and certain taxes.
How to incorporate in Alberta step by step
As we indicated, the first move is to decide whether to form an Alberta corporation or run your business as a sole proprietorship. Assuming that you are incorporating, here are the steps:
- Choose a name: The Alberta government recommends that businesses select a name that has three components – distinctive, descriptive and legal. Distinctive is usually the first word. Descriptive explains what your company does. Legal adds an incorporation at the end. For example: Bob’s Car Wash and Detailing Inc. This sets out that it’s distinctive, describes the type of business and adds the legal Inc. at the end. Other legal options include Limited or Ltd.
- Numbered company: If you prefer not to choose a name, you can create a numbered company in Alberta. You will be assigned a specific number, such as 123456 Alberta Inc.
- Professional corporation: Specific professions, such as dentists and doctors, can set up corporations using their profession in the name.
- Check the name: You can have a search conducted on the NUANS system to make sure that your company name (or a similar one) is not already in use.
- Hire a lawyer: Theoretically, you can set up the corporation yourself but most people get legal help. The lawyer will help structure your company and set out the share ownership and corporate bylaws.
- Register your corporation: There is a $275 government fee to register. In addition, an independent registry agent will charge a fee to do this service. The fees these agents charge are not regulated so shop around to make sure you are getting a good rate. In some cases, your lawyer can also handle this.
That’s it. Once your company is registered you can open your doors and start operating!
Benefits of incorporating
As we mentioned above, one of the key advantages of Incorporation in Canada is reduced liability risk.
In addition, there can be tax advantages to incorporating. Corporate tax rates are generally lower than for individuals. If your company needs to raise money, you can sell shares in the corporation – something you cannot do with a sole proprietorship.
If you retire or decide you want to make a change, it’s easy to sell a corporation.
How much does it cost to incorporate in Alberta?
The government registration fee is $275. The Alberta authorized registry agent’s charges are variable, but will run you about $225. A lawyer normally charges between $750 and $1,500 to establish the corporation.
Once your company is up and running, you will need to hire an accountant to compile your year-end and file your corporate income tax. And you will need a lawyer for your corporate resolutions. These costs can run to $2,000 or more per year.
When should I incorporate?
If you have decided to run your business as a corporation, you should incorporate prior to opening your doors.
However, you can also start your company as a sole proprietorship and see how it goes. Perhaps you are uncertain about whether it will be successful and don’t want to pay all of the associated incorporation costs. Once your business is off the ground, you can change it to a corporation at any time.
Articles of incorporation in Alberta
The articles of incorporation set out how your company will be structured. This can include the different classes of shares, such as voting and non-voting, as well as the maximum and minimum number of directors. Your lawyer will help you to complete the articles of incorporation.
Once your incorporation is finalized, you will receive a certificate of incorporation for Alberta.
The next step for incorporation
Setting up a corporation in Alberta is a similar process to doing so in any of the other provinces. The first step is to determine whether a corporation is the right structure for your business – instead of a sole proprietorship. You will likely need legal help so shop around for a lawyer who is experienced and will provide incorporation services at a reasonable rate. At the same time, you will need to decide on a name for your company – or alternatively set it up as a numbered corporation. Finally, you register your corporation and file the articles of incorporation.
While there are a number of steps to incorporating in Alberta, you will find it worthwhile in reducing your liability risk and providing tax advantages.
Once your incorporation is finalized, you will be included in the Alberta company registry. You are ready to start operating your business and generating revenues! Good luck!
