We are located in Vaughan, Ontario. Our office welcomes visitors. However, we also offer legal services remotely across Ontario.
Corporation is a separate legal entity which can own property, carry on business, possess rights, and incur liabilities.
Legal Requirements and Incorporation:
In most Canadian jurisdictions, a corporation may be incorporated by one or more corporations or individuals or a combination of both, unless one is less than 18 years of age, incapable or bankrupt.
Articles of Incorporation are the most important of the documents because they set out the fundamental characteristics of a corporation such as a name, jurisdiction of office and registration, class number and characteristics of shares, number of directors as well as any restrictions on transferring shares or business activity.
- The main purpose of an incorporated business is to protect the owner’s assets against the company’s liabilities.
- It offers your company tremendous benefits, such as protection from creditors and tax advantages.
- This document also details how you should plan to structure and run your corporation. This is how a business formally acknowledges that they intend to form a corporation. It also maintains the records required to conduct the affairs of an existing corporation, like drafting contracts and agreements.
- It helps clients understand the advantages of establishing a business corporation as opposed to a partnership or sole proprietorship.
- Incorporating a business shall abide by all the legal requirements pursuant to the Ontario Business Corporation Act (OBCA) or the Canada Business Corporation Act (CBCA) in its implementing rules.
- Shareholders own the corporation through their ownership of shares, but they do not own the property belonging to the corporation.
- The rights and liabilities of the corporation are not the rights and liabilities of the shareholders.
- Shareholders’ liability is limited to the value of the assets they have transferred to the corporation, in the form of money, property, or past services, in exchange for shares.
- Corporations are owned by their shareholders, but it is the directors who run it.
- Corporations are heavily regulated by different levels of government.
- Different rules apply in different jurisdictions with some overlap of federal and provincial requirements in Ontario.
Ability to Carry on Business in Different Jurisdictions:
- A federally incorporated corporation has the right to carry on business and use its name in all provinces.
- By contrast, a corporation incorporated under the OBCA can only carry on business in Ontario unless it obtains a licence under the extra-provincial licensing statute of another province.
- Unlike the situation with a CBCA corporation, this registration or licence may not be granted if the name of the Ontario corporation is not acceptable in the province where an application for the registration of licence is being made.
- Under the Ontario Extra-Provincial Corporations Act, a federal corporation is entitled to carry on business in Ontario without an extra-provincial licence.
- Registration of the business name either numbered or word is mandatory. To name a federal corporation, one must complete a NUANS Report and then register a legal corporate name or a trade name. Notably, when incorporating other than with a numbered name, the articles of incorporation must be accompanied by an Ontario- or federal-based search report obtained from the automated name search system. The NUANS system is maintained by Innovation, Science and Economic Development Canada. A NUANS is valid for a period of 90 days.
Types of Corporations
Corporations that are created for purposes other than making money, such as charitable, educational, or religious.
Corporations that are created only to make money. They can be either private (no public shares) or public (shares traded on the stock market) Professional Corporation: A corporation exclusive to professionals.
We can offer the following services to corporations:
- We will render services and information to our clients to better appraise the relevance of incorporation, their issues and concerns, and the legal rights of the corporations and its members.
- If a decision has been made to incorporate, we will provide you with the detailed format and procedures regarding incorporation and help you to determine whether to incorporate provincially, federally or both.
- We will also conduct a NUANS name search to ensure that your business name complies with all legal requirements. We will also manage the filing, registration, documentation, and other necessary legal requirements to properly incorporate your business provincially and/or federally.
- We will obtain any required Business licenses and permits necessary for you to carry on business.
- If required, we will also search for Articles of Revival
- We aid with the formulating of Articles of Incorporation that must specify basic details about your corporation, such as its name, principal office address, and sometimes the names of its directors.
- We create by-laws to establish the operating rules for your corporation.
- We assist in outlining the functions and roles of the corporation’s board members, officers, and members in order to establish a strong business organization.
- We help you draft a Shareholders’ Agreement, which is an agreement among a corporation’s shareholders, to outline how the company should be operated and the rights and obligations of shareholders.
- We help the Board of Directors draft board resolutions, written documents or statements, which record any decisions or action made by a Board of Directors during a board meeting.
- We also prepare and manage your minute book, which every corporation is required to keep by law so that you will never have to worry about losing your corporation
Example Board Resolutions:
· Opening and operation of a bank account
· Purchase of property for business use
· Purchase of the company’s motor vehicles
· Application of banking services with any bank, payment of dividends
· Election of new members or appointing new directors
· Acceptance of board member resignations
· Other business matters.
Decision to Incorporate
A major thing to consider is the cost of incorporating a business. It is an investment. Completing name search and name registration and drafting the Articles of Incorporation are usually done by a lawyer or a law clerk under their supervision.
Maintaining the corporation and paying off ongoing costs is also something that owners of incorporated businesses must keep in mind to comply with either provincial or federal laws. The corporation is required to complete annual filings. The method you choose to complete these legal filings may also affect your legal costs. Additionally, there are other legal responsibilities which a corporation must abide by no matter how small your business is. In addition to working with a lawyer, you will likely need to seek other professional services to help maintain the corporation.
As a result, incorporating a business is not an easy decision to make. There are some advantages and disadvantages to consider. This inquiry is fact-specific and depends on one’s business needs and plans. For some businesses, it may be better to incorporate; for others, it may be better to remain a sole proprietorship. Regardless of where one is on that decision-making spectrum, it is best to speak with a lawyer and an accountant.
Sole proprietorship is the most cost-effective, least complicated, and quickest way to start a business. This is because it is owned and operated by one person, the sole proprietor, and the law treats the business and its owner as one entity. This is because there is no distinction between the owner of the business and the business itself. The sole proprietor can, and often will hire a few employees, but as long as the sole proprietor remains the only owner, the business is still considered a sole proprietorship.
There are many advantages to running your business as a sole proprietorship. These include minimal regulation from the government, complete control over the business, profits not having to be shared, and since a sole proprietor is only required to file one income tax return, s/he can remove any business losses or expenses from his/her personal income. Another benefit of operating as a sole proprietorship is that there is no distinction between the person and the business. A person can derive all benefits and is entitled to everything that is left after everyone else is paid. A sole proprietor can enter into contracts of employment with others and allocate certain functions in the business to them.
There are also disadvantages of sole proprietorship, the main one being the unlimited liability. This means that the owner of the business is personally liable for any of the business’ debts or obligations. This business form is not easily scalable and is good for relatively small sized businesses.
Unlimited personal liability carries the following risks:
· Personal assets may be seized in fulfilment of the business obligations.
· Responsible for all personal wrongful acts or infringements and any wrongdoings committed by her employees in the course of their employment.
· Responsible for all sales, supplier, and employment contracts as well as business loans.
· Dissolution does not relieve of liabilities incurred while carrying out a business.
· Can mitigate the risk of liability through insurance or provisions in contracts with customers and suppliers.
In addition, if the sole proprietor passes away, the business is over. It may also be difficult to raise the money required to start your business on your own and if your business is successful, a sole proprietor may be taxed at a higher rate. Finally, since a sole proprietor is not considered an employee of their business, they will not be entitled to benefits like a salary or vacation pay.
· A sole proprietor is limited to direct borrowing when it comes to raising capital.
· Employment status-wise, a sole proprietor may not be an employee of their business, i.e., contract with self.
· Income or loss are reported on the personal income tax forms.
· As for the legal requirements, the business name may be registered under the Ontario Business Names Act. Registration is required if you intend to use any name other than your full name. There are restrictions on business names which we can discuss on the call. Registration of the business name does not provide for exclusive use.
· Under licensing rules, a sole proprietor needs to obtain a Master Business Licence.
When two or more people conduct business together with the intention to make money, they are considered to be in a partnership under the Ontario Partnership Act (OPA). A partnership may arise in relation to a single transaction, time-limited activity (Spire Freezes Ltd v The Queen) or by filing government forms (Prince Albert Co-operative Assn v Rybka) or co-ownership of real estate, active involvement in management, profit sharing and receipt of rent (AE LePage Ltd v Kamex Development Ltd).
Similarly to a sole proprietorship, the partnership is not separated from the partners and each partner, together with the others, is therefore responsible for the debts and obligations of the business. Each partner will also pay tax at their own personal rate and have the ability able to deduct business losses from their personal income. Finally, any income generated by the business is considered to be income of the partners.
Types of Partnerships
- This is the most common type of partnership. Every partner has an equal amount of power and liability unless there is a partnership agreement stating otherwise
- Each partner has the duty to act honestly, in good faith, and in the best interest of the business.
- Similar to a general partnership
- Must consist of, at least, one general partner and one limited partner.
- A limited partner may invest in and profit from the business, but may not be involved in any of the daily operations of the business. As well, since the limited partner is not a named partner,
their liability is limited.
Limited Liability Partnership
- Partnership for professionals only that limits personal liability
- The firm name must contain “limited liability partnership” or “LLP” and be registered
- Each partner is responsible for all partnership expenses and obligations
- Each partner is responsible for their own negligence, therefore restricting the liability of the other partners
- In an LLP you must have professional liability insurance
- In Ontario, LLPs may be formed only by professionals whose governing legislation permits LLPs to practice the profession only. For example, lawyers, chartered accountants, and certified general accountants.
● Partners carry on business by themselves. This business form can be easily dissolved. All benefits accrue directly to partners. Each partner’s share of income is calculated at the “firm” level and is allocated per partner’s entitlement under a partnership statute or partnership agreement. Businesses may invest in a partnership to take advantage of the deductibility of losses (Backman v The Queen), which needs to be done under the advice of a lawyer or an accountant to avoid litigation. Finally, property consists of all property contributed to a partnership, including the one acquired on its behalf. By agreement partners may determine what can be done with the property.
● The OPA provides a set of default rules that helps govern the relationships among partners. These optional and flexible rules can be modified and replaced by a partnership agreement. Partners owe each other fiduciary duty meaning they must deal with each other in the “utmost good faith” and share “full accounts and all information” (OPA, section 28).
● Partnership is not a separate legal entity. Similarly to the sole proprietorship, each partner has unlimited personal liability for the business and to third parties. There are mandatory rules for liability to third parties.
● In a general partnership, each partner has unlimited personal liability. LLPs are similar to general partnerships. However, a partner is not personally responsible for liabilities, debts and obligations of a partnership or another partner for wrongful acts, including negligence. That being said, a partner remains liable for her own negligence and that of their employees. In situations involving criminal liability or fraud, knowledge of the acts and liability may be imputed.
● In a limited partnership, at least one partner has unlimited personal liability while one limited partner has liability limited to the amount contributed to the partnership.
● Specifically in the context of litigation, all personal assets may be seized. Each partner is to contribute equally to the judgement. A partner may file a lawsuit against other partners to recover her contribution.
Other things to consider:
● Not all partners may have the authority to act on behalf of the partnership. Partners cannot enter into a contract of employment with the partnership. Finally, personal Income Tax calculations are done for reporting purposes.
● As for the legal requirements, the business name registration is mandatory.
● Government registration fee is the same as for the sole proprietorship. Additionally, there is an identical Master Business Licence requirement.
Our corporate lawyers can offer the following services to partnerships:
- Draft partnership agreements
- File business name registration
Only three business structures have been discussed above, but your business is not limited to just those. If a sole proprietorship, partnership, or corporation is not a viable option for your business, you may consider the following:
There are other forms and methods of carrying on a business. Some ways of carrying out business do not qualify as a standalone, distinct form of business organization or a business relationship. For instance, a joint venture is used to define a legal relationship between two or more parties come together with a view of making some profit by combining their money, property, knowledge, skills, experience, time, or other resources: Central Mortgage & Housing Corp v Graham (1973); VanDuzer “The Law of Partnerships and Corporations” (2018) at 21. However, the parties do not intend to remain in that business relationship past reaching their common goal. Therefore, the two main features of a joint venture are “limited time” and “limited purpose”.
How Does a Joint Venture Arise?
A joint venture could be formed via a contract between the parties or by creating a partnership or a corporation. A contractual joint venture is not a separate legal entity: Nisha Technologies Inc v Canada (AG) (2009); VanDuzer at 81-82. If neither a partnership nor a corporation is used to carry on business as a joint venture, then one needs to look at the characteristics defined in Central Mortgage & Housing Corp v Graham. According to VanDuzer (2018) and applicable case law, these characteristics most likely point toward a partnership-like legal relationship between the parties to a joint venture.
Characteristics of a Joint Venture
This way of carrying on a business has limited legal consequences. Despite this, parties to a joint venture have fiduciary duties towards each other and cannot prioritize their self-interests and disclose confidential information learned in the course of doing business together: Hogan Estates Ltd v Sherbron Holdings Ltd (1979), LAC Minerals Ltd v International Corona Resources Ltd (1989); VanDuzer at 83.
- As previously noted, a joint venture is limited in time, scope, or purpose.
- A joint venture is a collective enterprise that does not require government permission to operate: Halsbury’s Laws of Canada – Business Corporations (2022 Reissue), HBC-4 Common Law (HLC-HBC, 2022). As a result, a joint venture is the least regulated way of carrying on a business.
- Both profits and losses are the individual liability of the parties to a joint venture: HLC-HBC-7. When a dispute arises between the parties, a fiduciary duty may not necessarily be found in all cases: VanDuzer.
- A joint venture is not a taxable entity under the Income Tax Act, 1985, but the parties still need to track expenses on their individual accounts: HLC-HBC-7.
- Due to a loosely defined business structure, it is difficult to provide clear legal advice on the consequences of using a joint venture: HLC-HBC, 2022.
- If the court finds a partnership-like relationship, the parties must follow the applicable provincial partnership statutes. Ontario has two main partnership statutes: the Partnerships Act, 1990, and the Limited Partnerships Act, 1990.
A franchise is a contractual relationship between the franchisor and the franchisee, wherein the former gives the latter the right to operate its business in return for a fee. Franchises such as restaurants and medical spas are set up through a franchise agreement. A franchise does not constitute a partnership or a joint venture (VanDuzer, “The Law of Partnerships and Corporations” (2018) at 22-23 and 669). The essence of this business relationship is based on obtaining a licence.
Specifically, the franchisee receives the right to use the franchisor’s trademark to sell goods or services associated with its core business (VanDuzer at 22).
As part of the franchise agreement, the franchisor aims to maintain the quality of goods and the standard of services provided across the different businesses within a franchise system. Under the agreement, the licensees access employee training and equipment and often source goods or ingredients from the same suppliers or vendors.
In Ontario, franchisors must observe certain rules and treat franchisees fairly. Under the Arthur Wishart Act (Franchise Disclosure), 2000, franchisors have the following obligations (VanDuzer at 23-24):
- Duty of Fair Dealings: Franchisors must deal with the franchisees fairly and in good faith, following reasonable commercial standards.
- Disclosure: Franchisors must disclose the nature of their business and its risks.
- Withdrawal Rights: Franchisees have a right to withdraw from the franchise agreement within sixty (60) days after receiving the disclosure document or fourteen (14) days after signing the franchise agreement, whichever is sooner. The franchisee may withdraw from the agreement within two (2) years after signing the agreement in the absence of a disclosure document.
- Damages for Misrepresentation: Franchisees have the right to damages if a disclosure document contains misleading or inaccurate information.
- Right to Organize: Franchisees have the right to unionize
A licence is a contractual relationship between the licensor, who owns the rights to intellectual property – a patent, trademark, or copyright – and the licensee, who seeks these rights (VanDuzer, “The Law of Partnerships and Corporations” (2018) at 21-22 and 670-671). In other words, the owner of an idea (licensor) grants another person (licensee) the right to use a concept, design, or formula. For example, licences are often used in franchise agreements, including medical spas, restaurants, coffee shops, etc. Additionally, licences may be required to operate certain aspects of a business, including but not limited to joint ventures and partnerships (VanDuzer at 106-7).
Under specific provincial corporate statutes, extra-provincial corporations may obtain licences to conduct business in another jurisdiction. Federally incorporated companies are not exempt from following provincial laws and may be required to obtain a licence (Halsbury’s Laws of Canada – Business Corporations (2022 Reissue) (Wahl, Coombs), HBC-14, II.4.). Obtaining a licence could be as simple as providing basic information and paying a government fee. This regulatory regime allows for the mobility of a provincial corporation within Canada. For example, Ontario automatically grants licences to all corporations incorporated in Canada under its Extra-Provincial Corporations Act, 1990, unless another business is already operating under the same business name. Therefore, it is essential to do a name search before filing for a licence in Ontario (Ibid.).
Finally, obtaining a licence could be a prerequisite to operating a business in a particular field or under a specific regulatory regime. Since licenses can intensely vary based on your municipality and business type, you should do your due diligence before carrying on your business in Ontario.