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What to do after incorporation

September 25, 2020   ·   0 Comments

By Luis Chacin

Entrepreneurs are the drivers of economic growth. They accumulate savings and invest in the future. Of course, as with all forecasting, there is an intrinsically speculative aspect to the process. Forecasting is also subjective, as often expressed with the phrase “value is in the eye of the beholder”. However, even though we cannot predict the future, there are a number of commercial practices and solutions that entrepreneurs use to prepare for and allocate risk. One such practice or solution is the use of a corporation as a business vehicle.

A corporation is a fictional “person” that only exists by operation of law and for legal purposes. In the case of a business corporation, also known as a share capital corporation, this separate legal entity is afforded many of the rights, powers and privileges of a natural person, including the right to own, sale, lease or charge property. In this way, and as long as the shareholders are not acting fraudulently or in bad faith, the risk exposure of a shareholder for the liabilities of the corporation as a separate entity is limited to the value of their investment. An accountant would also highlight the tax deferral advantage of a corporation and the combined federal and Ontario tax rate of 13.5% in case of a Canadian-controlled private corporation with active business income up to $500,000 in a fiscal year. If you know all about the limited liability and tax advantages of a business corporation, then you are on the right track and just have to make sure you comply with your corporate records and filing obligations. 

A hundred and fifty years ago, creating a corporation was only possible through letters patent and for the benefit of individuals close to the Crown. Today, anybody with a few hundred dollars can go online and incorporate a business within a matter of hours, even if the business only exists as an idea.  Unfortunately, the ease with which anybody can incorporate a business over the internet is inversely proportional to how much people know about the continuing records and filing obligations associated with maintaining this fictional “person”, which is more than maintaining accounting records and filing an annual tax return, and why having a lawyer review your corporate records once a year is recommended.

The Ontario Business Corporations Act (OBCA) provides that a corporation (including professional corporations) must prepare and maintain: i) all articles of the corporation (e.g. articles of incorporation, articles of continuance or articles of amalgamation), ii) the by-laws and its amendments; iii) a copy of any unanimous shareholder agreement; iv) minutes of meetings and resolutions of shareholders; iv) a register of directors, including their contact information, as well as the dates on which each became or ceased to be a director; v) a securities register; vi) a register of ownership interests in land; and vii) records containing minutes of meetings and resolutions of directors and committees of directors. Federal corporations subject to the Canada Business Corporations Act (CBCA) have similar record keeping obligations, in addition to the requirement to maintain a register of individuals with “significant control”. Both the CBCA and the OBCA impose an obligation on the shareholders of a business corporation to appoint an auditor to approve the financial statements for the previous year at each annual meeting. However, private corporations may rely on an exemption from this requirement. 

Other record keeping and filing obligations are provided in the Ontario Corporations Information Act, which requires the filing of an “initial return” and subsequent “annual returns” containing certain prescribed information such as the names and addresses of the corporation’s directors and senior officers. If the corporation is or would be operating under a name other than its corporate name, then the corporation must also comply with the requirements of the Ontario Business Names Act.

But as fun as it is maintaining a business corporation (that is, of course, if you have the temperament of a corporate lawyer and never had any real fun), at the end of the day, the hard work is done by entrepreneurs. Operating your business through a corporation can be very effective for managing and allocating risk, but it will not help with future revenues or market share. The success of any business endeavour depends on a wide variety of factors outside the control of the entrepreneur, but mainly depends on what the entrepreneur does about what can be controlled. Complying with your corporation’s continuing records and filing obligations is one of those choices within your control as a business owner. 

lchacin@carters.ca 


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