Corporate Structure
Expert Guidance in Establishing Your Corporate Foundation
Setting up the right corporate structure is crucial for the long-term success of your business in Canada. We guide you through the complexities of establishing a compliant corporate structure. We take care of this process so that you can focus on starting your business.
Structure Right.
We streamline the setup of your Canadian corporate structure, ensuring full compliance and laying a solid foundation for your success.
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Mastering Your Corporate Structure with Expert Insights
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Sole Proprietorships and Partnerships
According to the Canada Revenue Agency (CRA), a sole proprietorship is the simplest form of business structure, with income reported on the owner’s personal tax return. Partnerships, while similarly straightforward to establish, also have joint liability; as per the Partnerships Acts in each province and territory, partners can be personally liable for each other’s actions. Unlike corporations, these are not separate legal entities, which does not protect your personal assets from your business debts.
Federal Incorporation
The Canadian Business Corporations Act (CBCA) allows a federal corporation to operate in any Canadian province or territory with a distinct legal identity separate from its shareholders. Further, under the Income Tax Act, a Canadian-Controlled Private Corporation (CCPC) incorporated federally can access the small business deduction if its taxable capital is less than $15 million, and they can also claim expenses for their business operations, and are taxed only on profits made within Canada. Federal corporations also get access to the Federal Innovation Program. This, in addition to a broader ability to market across Canada, can provide a big incentive for incorporation at the federal level.
Provincial Incorporation
Provincial incorporation provides opportunities for certain provincial benefits and tax credits, as each province and territory has different incentive programs. The specific requirements vary significantly; for instance, the Ontario Business Corporations Act governs Ontario corporations, while Quebec's Act Respecting Legal Publicity of Enterprises does the same in Quebec. These laws set out different requirements for setup, ongoing compliance and operation. Under provincial law, businesses are taxed only on profits made in that province. In order to access the small business deduction in that province, the business must also meet the conditions set out under the Income Tax Act, as they are not a Federal Canadian Controlled Private Corporation.
Precision in Compliance.
The Core of Corporate Governance: Federal and Provincial Acts
The legal framework for corporate governance in Canada is primarily established by the Canadian Business Corporations Act (CBCA) for federally incorporated entities and by similar acts at the provincial level. For instance, Ontario corporations adhere to the Ontario Business Corporations Act (OBCA), while Quebec operates under the Act Respecting Legal Publicity of Enterprises. These statutes dictate the fundamental responsibilities of directors, the rights of shareholders, and mandatory procedures for corporate operations.
Formalizing Decisions: The Role of Corporate Resolutions
According to guidelines provided by the Corporate Registry in Canada, a corporate resolution is a formal decision of a corporation's board of directors or shareholders, and must comply with the applicable federal or provincial corporate act. These resolutions are crucial for legitimizing key corporate actions such as the appointment of officers, and they must be properly documented and kept on file, as they are key evidence for legal compliance.
Fiduciary Duties of Directors: Adherence to the Law
Under the CBCA and provincial equivalents such as the OBCA, directors have a fiduciary duty that includes a responsibility to act with care, diligence, and honesty in the best interests of the corporation. It's important for directors to stay up to date with the latest legislation and their responsibilities. The Securities Act in each province may impose additional duties and liabilities on directors, especially with publicly traded companies.
Mandatory Annual Filings: Staying Compliant
Every Canadian corporation must file annual returns with the Canada Revenue Agency (CRA) and with the province of registration, and must include current addresses for all directors and officers and details of all key changes to the corporate structure or operational details. Federal and provincial authorities such as Corporations Canada provide online portals for filing and guidelines must be adhered to. These filings help to ensure ongoing compliance and to maintain a business in good legal standing.
The Corporate Minute Book: A Key Legal Record
As mandated by the CBCA and similar provincial acts, all Canadian corporations are required to maintain a minute book containing key legal records such as articles of incorporation, bylaws, minutes of meetings, and shareholder agreements. The corporate minute book is a key legal document and proof that the business has been adhering to corporate governance rules and compliance.
FREQUENTLY ASKED QUESTIONS
What are the specific legal distinctions between a federal and a provincial "articles of incorporation" in Canada?
While both federal and provincial incorporation require articles, the requirements differ significantly. Federal articles, under the Canadian Business Corporations Act (CBCA), allow for a "nationwide" operation and must explicitly state that the business can operate outside of its registered province. Provincial articles, governed by acts such as the Ontario Business Corporations Act (OBCA) or Quebec's Act Respecting Legal Publicity of Enterprises, are specific to a province, and any extra-provincial operations must be registered accordingly. The federal articles also require different filing timelines than those of a provincial nature.
How do "unanimous shareholder agreements" differ from standard shareholder agreements under Canadian law, and are they required?
While standard shareholder agreements address common operational issues, unanimous shareholder agreements are specifically created to restrict the power of the directors, and they grant shareholders specific powers that are different from those under the CBCA, and the requirements vary under provincial corporate acts. While standard shareholder agreements are common, the CBCA does not mandate a unanimous agreement unless you want to remove the powers of directors; a provincial act such as the OBCA also allows unanimous agreements, and the provisions and requirements for these must adhere to provincial legislation.
What are the specific requirements to maintain a compliant "corporate minute book" and what are the legal implications of failing to keep this document accurate?
As detailed in federal and provincial corporate acts, a corporate minute book must include all organizational documents such as articles of incorporation, bylaws, all shareholder agreements, all resolutions, annual returns, and all records of director and shareholder meetings. Failing to keep this up-to-date and accurate can result in fines under the various corporate acts, and potential legal challenges, and it also calls into question the legality of any business transactions made by the business.
What are the specific liabilities for directors under the Canada Labour Code and provincial employment standards acts?
Under the Canada Labour Code and its provincial equivalents, directors can be held personally liable for violations of labor laws such as failure to remit source deductions on time, or for non-payment of wages to employees. Directors are also responsible for ensuring the corporation complies with all employment standards, as well as the Canadian Human Rights Act, which governs employee’s rights in a federally regulated workplace.
Beyond the Income Tax Act, what are some specific tax implications of choosing a federal versus a provincial corporation?
While the Income Tax Act provides a general framework, specific provincial corporate tax acts can impose additional taxes or benefits that are specific to that province. A federally incorporated corporation is taxed on profits across all provinces, while a provincial corporation is only taxed on its profit from that province, unless they have an extra-provincial registration. Each province also has its own tax credit programs and tax legislation that apply to that particular jurisdiction. The requirements for accessing the federal small business deduction are also different for each.
How does Canada's Personal Information Protection and Electronic Documents Act (PIPEDA) apply to corporate records, and what steps should be taken to stay compliant?
PIPEDA dictates how corporations handle personal information, and requires that the business must obtain consent to collect, use and disclose it. PIPEDA applies to all federally regulated corporations, and provincial laws may also apply depending on where you are incorporated. As such, any corporate records that contain personal information (shareholder details, contact information) must be kept securely with limited access. PIPEDA also requires that individuals have access to their own records and have the right to correct errors in that information.
