Corporation

Careful planning with a Chartered Accountant is warranted. Contact Keith Anderson CA at (780) 447-5830 if you need advice. 

Click HERE for more information on Corporations and Taxation.

Click HERE for a discussion on the Decision To Incorporate.

When operating a business, many entrepreneurs operate it in a company.  Many companies are private corporations.   A significant consequence of operating the business in a corporation is that, except for special considerations or obligations, (such as personal guarantees for corporate bank loans or directors' legal obligations), in the event of bankruptcy, the personal liability of an owner for the debts, obligations or acts of a company are limited to the amount of his/her investment in the company.

A corporation may be registered with the governing corporate authority under a specific name or as a numbered company. It may also register a specific trade name, or trade names.  A company is obligated to pay income tax in its income, net of expenses, earned in a taxation year.  The company files a tax return to report this income.  The corporation does not end with the death of a shareholder, and the selling of shares can transfer ownership. Another form of corporation is the public company.

You have the option to incorporate at a provincial or at a federal level . If a company intends to carry on its activities solely in one province, provincial incorporation may be preferable. If the company wishes to expand its activities outside of its provincial jurisdiction at a later date, it must obtain an extra-provincial license from every other province in which it wishes to open an office or obtain a presence.

Under the Canada Business Corporations Act, any individual or corporation may receive a certificate of incorporation for any legal purpose with the exception of operating such institutions as banks, insurance companies, and trust and loan companies. In several provinces, a federally incorporated company will still have to obtain extra provincial registration to operate.  

The following characteristics distinguish a company from a partnership or proprietorship: 

1.  Limited liability - normally no member can be held personally liable for the debts, obligations or acts of the corporation beyond the amount of share capital the member has subscribed; and

2.  Perpetual succession - because the corporation is a separate legal entity, its existence does not depend on the continued membership of any of its members.

Advantages

1.  Limited liability (except for some situations)

2.  More income tax advantages

3.  Ownership is transferable

4.  Continuous existence except if wound up

5.  Separate legal entity

6.  Easier to raise capital 

Disadvantages

1.  More regulated

2.  Most expensive form to organize and maintain

3.  More record keeping

4.  Double taxation i.e. income is taxed in the corporation and then again when distributed to shareholders as a dividend

5.  Because a separate legal entity, losses also remain in the company

6.  Shareholders may be held legally responsible in certain circumstances

7.  Personal guarantees undermine limited liability advantage

Careful planning with a Chartered Accountant is warranted. Contact Keith Anderson CA at (780) 447-5830 if you need advice. 

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