Corporation

A corporation is an artificial legal person created by statute, with an existence separate from that of its shareholders, directors, and officers. It may own property, enter into contracts, incur liabilities, sue and be sued, and carry on business in its own name, and it continues to exist notwithstanding changes in ownership. In Canada, a business corporation may be incorporated federally under the Canada Business Corporations Act (CBCA) or under the business corporations statute of any province or territory. The choice of jurisdiction affects the name protection available, director residency requirements, filing obligations, and the transparency regime, but does not change the corporation's federal income tax treatment.

JURISDICTION OF INCORPORATION

• Federal (CBCA): administered by Corporations Canada. A federal corporation has the right to carry on business in every province, but must still register extra-provincially in each province in which it carries on business. The name is protected nationally against identical or confusing names.

• Provincial or territorial: a corporation incorporated under a provincial statute may carry on business in other provinces only after extra-provincial registration in each.

• Principal provincial statutes: Business Corporations Act (Ontario), Business Corporations Act (British Columbia), Business Corporations Act (Alberta), The Business Corporations Act, 2021 (Saskatchewan), The Corporations Act (Manitoba), Business Corporations Act (Quebec), Business Corporations Act (New Brunswick), Companies Act (Nova Scotia, including the unlimited liability company), Business Corporations Act (Prince Edward Island), Corporations Act (Newfoundland and Labrador), and the Business Corporations Acts of Yukon, the Northwest Territories, and Nunavut.

THE INCORPORATION PROCESS

1. Selection of a name, supported by a NUANS (Newly Upgraded Automated Name Search) report where a word name is proposed, or use of a numbered name. The name must include a legal element such as Limited, Limitée, Incorporated, Incorporée, Corporation, or the abbreviations Ltd., Ltée, Inc., or Corp.

2. Preparation and filing of articles of incorporation, specifying the name, registered office address, number of directors (fixed or minimum and maximum), classes and maximum number of shares, restrictions on share transfers, and any restrictions on the business.

3. Filing of the initial notice of registered office and first directors, where required separately.

4. Issuance of a certificate of incorporation, which constitutes the corporation's existence from the date stated.

5. Organisation of the corporation: adoption of general by-laws, appointment of officers, issuance of shares, establishment of banking arrangements, and fixing of the fiscal year-end, normally recorded by resolutions of the directors and shareholders.

6. Registration for a CRA business number and the relevant program accounts (corporate income tax, GST/HST, payroll, import-export), and for provincial accounts (such as Employer Health Tax, provincial sales tax, and workers' compensation).

CORPORATE GOVERNANCE

Shareholders

• Shareholders own shares, not the corporation's assets. Their rights depend on the share class: voting, receipt of dividends when declared, and participation in the remaining property on dissolution.

• Shareholders elect directors, appoint the auditor (or consent unanimously to waive an audit in a non-offering corporation), approve fundamental changes by special resolution (generally two-thirds of votes cast), and receive the annual financial statements.

• A unanimous shareholder agreement may restrict, in whole or in part, the powers of the directors and transfer them to the shareholders.

• Statutory remedies include the oppression remedy, the derivative action, dissent and appraisal rights, and the right to inspect corporate records.

Directors

• The directors manage, or supervise the management of, the business and affairs of the corporation.

• Statutory duties: the fiduciary duty to act honestly and in good faith with a view to the best interests of the corporation, and the duty of care to exercise the care, diligence, and skill that a reasonably prudent person would exercise in comparable circumstances.

• Residency: the CBCA requires that at least 25% of directors be resident Canadians (or at least one, where there are fewer than four directors). Ontario eliminated its residency requirement in 2021, and several other provinces impose no residency requirement; the remaining jurisdictions should be confirmed before incorporation.

• Statutory personal liability: directors are jointly and severally liable for unpaid employee wages up to six months' wages and for accrued vacation pay; for unremitted payroll source deductions under section 227.1 of the Income Tax Act; and for unremitted net GST/HST under section 323 of the Excise Tax Act. A due diligence defence is available, and an action against a director must be commenced within two years after the director ceases to hold office.

Officers

Officers, such as the president, secretary, treasurer, or chief executive officer, are appointed by the directors and exercise the authority delegated to them by by-law or resolution. One individual may hold several offices and may also be the sole director and shareholder.

SHARE CAPITAL

• All shares are without nominal or par value under the CBCA and most provincial statutes.

• Common shares typically carry voting rights and the residual right to dividends and property on dissolution.

• Preferred shares may carry fixed or discretionary dividend entitlements, priority on dissolution, and redemption or retraction features, and are frequently non-voting.

• Multiple classes of shares are used to separate control from economic participation, to facilitate income splitting subject to the tax on split income rules, and to implement estate freezes.

• Stated capital is maintained in a separate account for each class and series of shares.

CLASSIFICATION FOR TAX AND REGULATORY PURPOSES

• Canadian-controlled private corporation (CCPC): a private corporation that is a Canadian corporation and is not controlled by non-residents, public corporations, or a combination of them. CCPC status confers access to the small business deduction, enhanced refundable SR&ED investment tax credits, the lifetime capital gains exemption on qualified small business corporation shares, and extended filing and payment deadlines.

• Other private corporation: a private corporation that is not a CCPC.

• Public corporation: a corporation resident in Canada with a class of shares listed on a designated stock exchange in Canada.

• Professional corporation: a corporation through which members of regulated professions (in Ontario, including physicians, dentists, lawyers, chartered professional accountants, and veterinarians) practise, subject to the ownership and liability restrictions of the governing statute and professional body.

• Holding corporation: a corporation whose principal assets are shares of, or debts owed by, other corporations.

• Not-for-profit corporation: incorporated under separate statutes, such as the Canada Not-for-profit Corporations Act or the Ontario Not-for-Profit Corporations Act, 2010.

ONGOING CORPORATE COMPLIANCE

• Minute book and corporate records: articles, by-laws, minutes and resolutions of directors and shareholders, registers of directors, officers, shareholders, and securities, and the register of individuals with significant control, maintained at the registered office.

• Annual resolutions of shareholders (election of directors, appointment of an accountant or waiver of audit, approval of financial statements) and of directors.

• Annual return: federal corporations file an annual return with Corporations Canada within 60 days after the anniversary of incorporation. Ontario corporations file an annual return through the Ontario Business Registry within six months after the end of each fiscal year. Each province and territory imposes its own annual filing requirement.

• Notices of change: changes of directors, officers, or registered office must be filed within the prescribed period (15 days for federal corporations).

• Individuals with significant control: federal corporations must maintain a register and file it with Corporations Canada; Ontario and several other provinces require a register to be maintained; Quebec publishes ultimate beneficiary information through the Registraire des entreprises.

• Extra-provincial registration and annual filings in every other province or territory in which the corporation carries on business.

• Federal T2 corporation income tax return, provincial returns where applicable (Quebec CO-17; Alberta AT1 for corporations with a permanent establishment in Alberta), payroll remittances, information returns (T4, T5, T5018), and GST/HST returns.

FUNDAMENTAL CHANGES AND TERMINATION

• Amendment of articles, amalgamation, continuance into another jurisdiction, arrangement, and sale of substantially all assets require special resolutions of shareholders and may trigger dissent rights.

• Voluntary dissolution by articles of dissolution after the corporation has discharged its liabilities and distributed its property, with a tax clearance certificate recommended before distribution to shareholders.

• Involuntary dissolution by the director appointed under the statute for failure to file annual returns or other default; revival is available within prescribed periods.

RELATED PAGES

• Corporation: Bookkeeping, for share capital, retained earnings, dividends, shareholder loans, and corporate financial statements.

• Corporation: Payroll, for owner-manager salary, source deductions, and director liability for remittances.

• Corporation: Tax, for the T2 return, federal and provincial corporate rates, the small business deduction, instalments, and integration of corporate and personal tax.

SOURCES

• Canada Business Corporations Act, R.S.C. 1985, c. C-44; Business Corporations Act, R.S.O. 1990, c. B.16.

• Corporations Canada, Guide to Federal Incorporation; Individuals with Significant Control.

• Ontario Business Registry, Annual Returns for Ontario Corporations.

• Income Tax Act, ss. 89(1), 125(7), 227.1; Excise Tax Act, s. 323.