Things to Consider When Incorporating Your Business

Incorporating your business in Canada can provide you with a level of protection in terms of liability. It can also show potential investors that you're serious about handling your business in a professional manner. Before you enter into the incorporation process there are many factors you'll want to consider. 

Will I be able to conduct business throughout the country?

If you make your company a federally incorporated company then you'll be able to conduct business across all of Canada. On the other hand, a corporation who files under OBCA is restricted to doing business in Ontario exclusively, unless it obtains additional licenses. Understand that choosing between a provincial or federal incorporation would depend on the type of business that you run and your vision for the future.

What are all the filing requirements?

As a corporation you'll have to follow the laws of "general application, requiring registration, returns and/or fees" as they apply to each particular province. These requirements are all contained in the CBCA provisions. Additionally, any time there is a change in your corporation you'll need to make necessary filings. There are other restrictions under the Business Names Act which pertains to the name you can select for your company.  

Where can I hold my board of director's meetings?

If you are a federal corporation you can hold those meetings anywhere in Canada. With a provincial corporation those meetings must be held within your province. These requirements should be spelled out in the filing papers.

Filing for incorporation will require you to look ahead to the future of your business. It might seem less costly to do the minimum amount of legal work for a "simple" incorporation application. That approach could come back to haunt you when your business takes off and you look to expand throughout the country. There will be a lot of effort going into your incorporation filing. Make sure you explore all your options to ensure the greater potential for success. In other words, cover all the bases ahead of time and you'll come out on top! 

For more information on incorporation and to place an order to have our experienced paralegals draft  articles of incorporation on your behalf, please visit our website at www.CorporationCentre.ca.

Getting Incorporated: Tips on Incorporating a Business

There has been a lot of talk recently about whether or not a corporation can be considered a person. While pundits debate those points, the courts have already decided: a corporation is a legal entity that can enter into lawsuits, be taxed and buy land just as any individual will. As a small business owner you might soon discover there is very little space between you as a person and your corporation. The biggest advantage of incorporating is that it can protect your personal assets. Those should always be kept separate from your corporate umbrella.

The following are tips to follow as you head down the road of incorporating your company.

1)      Decide Where You’ll Incorporate

The three options for business incorporation would be within your own state or province, within your own country or in a foreign country. Most small businesses start out by keeping it simple and incorporating within their own region. However, it is worth exploring other options if for no other reason than the possible tax breaks you might receive. Once you are incorporated all the general laws will apply no matter where your company chooses to file the paperwork.

2)      Decide Your Board of Directors

The next step is to create a pre-incorporation agreement. This agreement will establish who will be on your board of directors and in what position. It will also have you establish the value of your company stock. Note that these stock shares have more to do with position than actual trading. For instance, when Facebook started up, investors and employees were offered stock options as part of their compensation. Years later, Facebook is finally going to go public and those original stock options will hold true value based on what the market decides.

3)      Decide Your Company Name

You’ll next have to file an official registration name for your corporation. Before doing this, you’ll have to research your name to make sure no other corporations that have the same title. You could simply file without the research but if your company name is rejected then you’ll have to start all over again.

4)      Decide on Your Articles of Incorporation

This will become the bulk of your incorporation paperwork and is not something you’ll be able to handle without a corporate lawyer. The procedures for creating these articles will be based on the rules and regulations that have been established in the region where you’ll be incorporating. When these articles have been filed, you’ll be sent an official certificate of incorporation. Once you sign that, you’re an official, fully recognized corporation.

Along every step of the way, there will be filing fees and legal costs you’ll have to pay out. There are some law firms that specialize in filing incorporation papers and offer affordable packages for start-up business. After you’ve completed all of these incorporation steps, you’ll need to hold your first board meeting and set up your own bylaws.

Is There An Employment Boom?

Recently released statistics by Statistics Canada indicated positive employment figures for November 2009. But, is the picture truly as rosy as it appears?
 

According to the figures, Canada's unemployment rate dropped by one-tenth of a percent from October, reducing the rate to 8.5 per cent. Full time jobs increased by 39,000, while part time employment increased by 40,000. While these 79,000 new jobs indicate a strong pick-up in the labour force and, subsequently reflect on a steady recovery of the nation's economy, there are a few factors to consider that may curb the euphoria.
 

First, it should be pointed out that economists agree that this pace of job growth is entirely inconsistent with the current pace of economic recovery.

Next, economists are concerned that the total hours worked declined by 0.3 per cent. In other words, more Canadians are working but less work hours are being paid. Simply put, Canadians are bringing home less money.
 

Another point noted is that almost all the new jobs – 73,000 positions – were in the service sector, primarily in educational services. It is quite possible that this gain may be an abnormal seasonal adjustment. December, therefore, may be far less positive in terms of actual job gains.
 

Economists are also concerned about weak job productivity as a result of various factors compounded to negatively impact workers' motivation.
 

Finally, self-employment fell by 32,000 jobs in November. In theory, this drop can be viewed positively. In a weak economy, self-employment gains are generally discounted. They are viewed as a fallback for unemployed Canadians who have no choice but to start their own businesses in lieu of regular work.
 

Is the Canadian job market truly on the mend? Only time will tell.

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Show Me the Startup Money

You have the idea and the knowledge. The desire, drive and ability are there. You're ready to dive into that new business but, alas, you lack the money to start. Where does an entrepreneur secure the necessary start-up capital for a new venture?
 

By far, the easiest source of funds is from family and friends. Roughly 13% of all Canadian entrepreneurs use this route. Keep in mind, though, that family and funds don't always mesh well. It may be a better idea to have a relative or friend co-sign or guarantee a loan, rather than lend their own money.
 

Certainly, the lender with the most available cash is the bank. Unfortunately, though, banks often pose the most obstacles to borrowers. One solution to satisfying the bank's criteria is to apply for Small Business Financing via your bank. This federal program is backed by Industry Canada and guarantees 85% of the value of bank loans.
 

Angel capital may work for you. "Angels" are investors, generally former business executives or entrepreneurs. In addition to their money, they also can offer expertise and contacts. While they are not seeking control of your company, they do expect a healthy return and may wish to take an active role until their investment is returned.
 

It is well worth investing some time and energy to see if any government programs are applicable to your needs. Generally, these programs offer favourable terms and have flexible payment options.
 

Some 22% of Canadians have used credit cards to fund their start-ups. By checking interest rates, some have found these loans to be to their advantage.  Also, as new credit lines with lower rates become available, older loans can be repaid and interest saved.
 

Consider all your options and best of luck in your new business.


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'Tis the Season to be Eco-Green

Some say it's fashionable. Others say that it's political fodder. However, most Canadians have begun to see that our climate is truly changing. As such, the way we live must change as well. And, certainly, the business community must become far more environmentally sustainable.
 

Business analysts have discovered that "going green" is not just a socially acceptable act. It actually makes good business sense and, ultimately, has a positive impact on the bottom line.
 

For example, eco-friendly companies are those that have managed to reduce resource usage and waste volumes. In turn, this reduces expenses, both in personnel and equipment. A recent research study concluded that integration of sustainability practices can increase profits for small and medium sized companies by up to 66% over five years.
 

Customer relations are the backbone of business. The public is far more likely to support industry that is doing "the right thing" in regards to the environment. Recent studies have shown that two-thirds of consumers are likely to shift their loyalty to environmentally friendly companies.
 

Companies can also realize savings from reduced personnel costs. Hiring and attrition cost money. A recent survey of students revealed that 68% felt that social and environmental reputation of an employer were more important than salary. Most would prefer to sign on for the long term with an eco-friendly employer.
 

Recycling is good for the environment as well as for the ledgers. Companies can save tremendous amounts of money by recycling equipment and materials. Moreover, by encouraging employees to take part in the effort, companies build loyalty and increase productivity.
 

Don't view going green as a threat. View it positively and reap the benefits of a healthier environment and a rewarding business.

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Employee Etiquette: Being Held Accountable

 If your business has more than one employee, you inevitably have to deal with the question of accountability. Something is left incomplete or a task is not performed and someone must be held accountable. As an organization increases in size, so does the chain of accountability.
 

     The truth is that the individual may be at fault but, quite often, they are responding to a larger environment. The work atmosphere dictates how an individual performs. In the big picture, employees will generally respond in a similar fashion to their superiors.
 

     A good manager knows the right way to foster a spirit of accountability. For example, adherence to guidelines is crucial. If you set deadlines, stick to them. If you don't, why should your employee? Do you adhere to schedules of meetings by starting and finishing on time? What about follow up? There is nothing worse than assigning a task and ignoring the follow up. The old fashioned "red flag" system still works wonders. Mark assignment dates in your date book (remember those?) and attach a little coloured sticker to show you when you have to check it. Finish your meetings with a summary so that everyone knows what was discussed and what lies ahead.
 

     We have all learned to give positive encouragement. However, a manager who is afraid of giving negative feedback is far less effective. Certainly, there are constructive ways to deliver criticism. There is also a realistic limit how many times an employee can make the same mistake before having to re-evaluate their position. Management is a skill that must be used correctly to derive maximum achievement. Like any aspect of business, it has an accounting system that must be properly balanced. Learning how to create that fine balance is one of the secrets of a successful business organization.
 

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Canadian Recovery Indicators

Recent economic records this summer seem to indicate brighter days on the Canadian horizon. Earlier, analysts had predicted a $100 million surplus in July. The reality, though, was quite different. Rather than a surplus, Canada experienced a near record deficit in July 2009 of $1.43 billion. This was surpassed only by the May 2009 deficit of $1.45 billion. Despite these figures, economic analysts seem buoyed by the surge in imports. The sharp rise in imports and exports seem to indicate that recovery from the global financial crisis is on the horizon.

Import figures for July reflected an overall 8.3 percent increase from the previous month. This positive figure included a 10.9 percent increase in machinery and equipment imports, an impressive 18.7 percent rise in automotive products, and a similarly encouraging 18.6 percent rise in energy products.

Exports rose by 3.3 percent in July, primarily due to increased shipments of equipment, machinery, and automotive products. 73 percent of all Canadian exports in July were to the United States but, due to the sluggish American economy, this figure was down a whopping 35.2 percent from July 2008.

In order to stimulate the economy, the Bank of Canada has promised to leave interest rates at their current record low. The recent trade figures have not caused the Bank to change its current position. Responding to the Bank's announcement regarding interest rates, the Canadian dollar rose to 92.46 U.S. cents from 92.10 U.S. cents.

Analysts insist that the increasing deficit is not a prime cause of long term concern. The true indicator is the rapid acceleration in trade volumes. The rises in imports and exports indicate increased commercial activity and the true beginnings of economic recovery.

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Joint Canada/B.C. Jobs Program

British Columbia has been seriously affected by the global recession. As a province with many communities heavily reliant on resource-based industries such as mining, agriculture and fishing and manufacturing, the job market is in a severe crisis. Responding to the needs of these western communities, the federal and provincial governments have banded together to create immediate jobs and help workers impacted by the recession.

A $14 million investment has been made recently through the Community Adjustment Fund and the Job Opportunities Program. 45 new projects will be funded, creating more than 470 jobs for laid-off resource workers. The projects are endorsed and supported by local communities. The programs are not stop-gap measures but will hopefully create foundations for long-lasting prosperity.

However, this is but one phase of a much larger program. The Job Opportunities Program was first announced in May 2008 with an initial investment of $25 million. In July 2009, the federal government and the B.C. provincial government, both committed to maintaining financial stability and keeping Canadians working during this recession, each committed an additional $30 million to the program. The Community Adjustment Fund, part of Canada's Economic Action Plan, is a two year, $1 billion nationwide program to support job creating projects and maintain employment in rural communities. Nearly one third of the program's funds, $306 million, are being directed to the four westernmost provinces of Canada. The impact of the recession has been felt much more in the west than other provinces across the nation.

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Canada to Attract More Business with Lower Corporate Taxes

A few days ago Tim Hortons Inc. announced that it was changing its corporate registration from the United States to Canada in order to take advantage of better tax rates in Canada.
Economist Douglas Porter of Bank of Montreal saw this step as confirming the Canadian government's decision to lower corporate income tax. As he notes, reductions in tax rates invite more businesses to base themselves in Canada and pay taxes here instead of somewhere more costly.

Porter believes that Tim Hortons decision will start a trend for businesses to switch their registration to Canada. As the United States is running into huge fiscal deficits, the tax rates are expected to continue to hike there. But the Canadian public sector's better position should allow tax rates to keep decreasing in relation to U.S. Taxes.

As far as we see, they are. The Federal corporate tax rate in Canada is now 19%, down from 22.1% in 2007. The rate is forecasted to keep falling, to 18% in 2010, 16.5% in 2011 and 15 per cent in 2012. The provinces are seeing parallel cuts too. The Ontario government plans to lower its general corporate income tax rate from 14% to 10% by 2013.

As these trends continue, the economy should be looking forward to more jobs and capital as well as higher revenues for government programs. And the lower rates will likely be offset by more stimulus for investment and production and more tax money pumped into the economy by more businesses being attracted to open up shop in Canada.

Maybe Canada is figuring out at long last that higher tax rates don’t always translate to high tax revenue. A classic case is tobacco taxes, where tax rate hikes often lead to greater black-market activity, smuggling and lower tax receipts. According to a Montreal Economic Institute study, in Quebec receipts from tobacco taxes went down more than 25% from 2002 to 2007,
Canadians would do well to rein in the stimulus packages that the federal and provincial governments have announced in response to the global economic recession. Without all that spending, Canadian taxes would be more likely to keep on their downward trend versus other countries and be able to generate some real growth by encouraging more businesses to operate here.

When countries like the U.S. and China administer massive stimulus packages to their economies, their effects will soon run off into Canada. And we even see it happening now. As China stockpiles raw materials, commodity prices are on the upswing. As the U.S. economy shows some recovery, it too should start bidding on natural resources and other exports from Canada.

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Why Should I Incorporate My Business in Canada? – Part II: The Advantages

So you are thinking about incorporating. Here are some more advantages as well as potential pitfalls of incorporating:

Limited Liability

As we said in the previous post, a corporation is a separate legal entity from its owners, and the main advantage of that is that the owners, or shareholders are for the most part not liable for the corporations debts and obligations. They can only lose the amount they invested in the corporation. The creditors can only have claims against the corporation itself and not the shareholders.

Perpetual Existence

Being a separate legal entity, a corporation does not cease to exist if the shareholders, directors, officers or members die or retire. The ownership of the corporation and it shares can therefore be easily transferred. The corporation itself may also own property, enter into contracts and sue or be sued, independent of any individual involved.

More Potential Sources of Capital, More Attractive to Investors

Corporations can issue different classes of shares as well as different debt instruments, such as bonds, in order to raise capital. Sole proprietorships and partnerships cannot do so as easily. This makes it easier for corporations to attract investors as opposed to the other business forms.

Tax Benefits

Among other tax benefits, incorporating would cause your business to pay income tax at a lower rate than as a sole proprietorship or partnership. It would also be possible to carry forth losses of previous years that offset the profits of subsequent years.

Credibility and Prestige

Incorporating can very well lend greater credibility and prestige to your business dealings that you would not have otherwise. You might be seen as a more established company as opposed to before you incorporated.

Now that we have discussed some of the advantages, here are some formalities you should be aware that you would be subjected to upon incorporating:

Higher Start-up Costs

The cost to incorporate, including government fees, may be higher than those to initiate a sole proprietorship or partnership.

Maintaining Records

In order to provide shareholders with information, a corporation must keep meticulous records, as well as hold meetings and elect directors.

Double Taxation

This may seem like a disadvantage, however it can be minimized. The corporation pays taxes on its income and the shareholders pay taxes on their dividends (profits). But the corporation's business expenses, such as salaries, can be offset by its income.


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