Incorporation in Canada: Everything You Need to Know

By: Updated: March 10, 2022

Suppose you’ve slowly been expanding your hobby into a side-hustle, or you have a fantastic new product idea. In that case, it might be time to take your passion further. 

Cue, incorporating your business. This allows you to act as an official entity and start snowballing your income substantially. But it can be challenging to figure out the right time to incorporate. 

In light of that, we’re covering everything you need to know about business incorporation in Canada. Let's dive in! 


Why Should I Incorporate My Business?

Maybe you’re still on the fence if incorporation in Canada is the next right step for you. Small businesses tend to incorporate eventually, but that doesn’t necessarily mean you have to follow along.

The main reason for incorporating your business is to gain limited liability. If any legal issue pops up between you and a client or customer, your personal assets will be protected.

With limited liability, you still have some liability. Still, no one will be able to go after your home, car, and personal accounts. 

Incorporation also has tax benefits. The corporate tax is much lower than the personal tax rate. This is especially true for small businesses that earn under $500,000 a year.

In Canada, such corporations benefit from considerably reduced corporate tax. It’s also easier to raise money as a corporation as you can sell shares and equity.

After a specific income rate, you might also prefer to keep your business operations separate from yourself.

You might want to have a dedicated business account, think about working with contractors or even employees, and operate under a different name to your own.

Finally, a corporation comes with perceived credibility that will inspire more confidence in your clients. If you work in a B2B field or hire employees, this may be significant for your brand’s reputation.


Incorporate Federally or Provincially

One of the first decisions you’ll make when incorporating your business in Canada is whether to incorporate federally or provincially.

There are advantages and drawbacks to both options:

Federal incorporation allows you to carry on business in all territories of Canada. This requires you to register your corporation in all of these provinces.

You’ll also be able to use the same business name across these provinces, even if another company is using a similar name. Your corporation will also be recognized internationally.

On the downside, you’ll face stricter name requirements and a lot of annual paperwork. You’ll have to not only stay compliant with the federal director of corporations branch but file for the requirements of all provinces you do business in.

Provincial incorporation only allows you to operate in your chosen province. 

Generally, the decision is easily determined by the scope of your business. If you operate alone and only do business in one province, for now, there is no reason to incorporate federally.


Naming Your Corporation

Naming conventions for corporations in Canada are more complicated than those of a sole proprietorship. Your corporate name has to be composed of three elements:

  1. A portion to identify your particular corporation

  2. A descriptive potion that identifies your corporation’s activities

  3. A legal element determining your company as a corporation (i.e., “incorporated,” “corporation,” or “limited”)

In Canada, corporate names can be English or French or include a combination of both. If you register your corporation provincially, you’ll also have to ensure that it doesn’t match any existing company name.

This will require you to complete a name search and reserve your name. Once you have completed the mandatory NUANS search, you’ll submit the subsequent report alongside your articles of incorporation.

You’ll also need to get a Business Number (BN) or if you’re in Quebec and NEQ. This is a nine-digit number you can register with the Government of Canada. 

And if your business earns more than $30,000 per year in total revenue, you’ll need to register for a GST/HST account. This enables you to get the taxes you pay as a company refunded!


The Documents You’ll Need for Incorporating a Small Business in Canada

The paperwork is one of the most daunting aspects of incorporation. But there are only three types of documents you’ll need to incorporate provincially in Canada.

The Articles of Incorporation: These are the rules and regulations by which your corporation will operate.

The Notice of Offices: This lets the state know where your business is operating from. Suppose you don’t have an official place of business. In that case, you may need to employ a registered agent to receive legal documents for you.

The Memorandum: This sets out the rules of conduct for your corporation.


Applying for Incorporation

Completing your corporation requires you to file your documents and apply. You can mail the forms to the registrar. But nowadays, it’s easier to form your business online.

All provincial registries have websites where you can incorporate your business. You’ll be prompted for the proper documents step by step.


It's Time to Put Into Action Your Business Incorporation in Canada

Once you've successfully handled your business incorporation in Canada, you’ll face a great many decisions on how to run your company, including looking for employees. 

If that's something you're considering, it’s essential to put your best foot forward from the get-go. You can protect your company and staff with affordable employee benefits such as a health spending account.

You could also profit from a health spending account if you’re an incorporated professional without employees. This allows you to write off your medical expenses. 


Write off 100% of your medical expenses

Are you an incorporated business owner with no employees? Learn how to use a Health Spending Account to pay for your medical expenses through your corporation: 

Download the HSA Guide for Incorporated Individuals

Do you own a corporation with employees? Discover a tax deductible health and dental plan that has no premiums:

Download the HSA Guide for a Business with Staff

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