Incorporation and Small Business Law

A charity is usually a non-profit corporation that serves a legally recognized charitable purpose such as education, advancement of religion, or relief of poverty, etc. Canadian charities are strictly regulated by the Canada Revenue Agency (CRA) and obtain tax exempt status if the CRA approves their application for charitable status. This allows organizations to issue tax receipts for donations.

It may be a unique name selected by you in consultation with your lawyer. Or your corporation may be described by a unique number.  The corporation may also carry on business under a different name, provided that name is properly registered and the corporation follows certain rules in dealing with the public.

Once the name is selected and reserved, you can apply for incorporation in a Province, such as Ontario, or in Canada, either as a business corporation or a non-profit. Your application will describe the general corporate structure and identify the original directors.  The government will issue the corporate charter (articles of incorporation or letters patent) and you will then organize your company by appointing directors, issuing shares, if it is a business corporation, and appointing officers.

A business corporation may issue an unlimited number of shares with various characteristics.  At a minimum, there must be voting shares and shares that are entitled to receive any remaining property (the equity) if the corporation is dissolved.

Not really. There are rules for how many people may hold shares in a private company before it must become a publicly traded company, after which you will need to take serious steps, such as issuing a prospectus, to comply with the Securities Act, and you are probably not reading this website, if that is the case. With an ordinary business corporation, you may issue shares to a few individuals you already know, such as your spouse, business partner, or an investor; each of these people will need independent legal representation.

It is a contract by which the shareholders agree to operate the corporation in a certain way.  It protects a minority shareholder from being outvoted on important issues such as the choice of directors or the issuance of more shares.  It should spell out the rights and obligations arising when a shareholder dies, proposes to transfer his or her shares, or wants to leave the corporation. The agreement should outline procedures for raising money, such as cash calls to the shareholders, loans by shareholders to the corporation, and shareholder guarantees of corporate debt.

A partnership is the easiest style of business to get into, though it is often the most risky. A partnership may form quickly around a particular business opportunity, but with little thought or planning.  A partner may be personally liable for business debts incurred by the other partner.  Partners frequently disagree with each other.  Unless there is a comprehensive written partnership agreement, the partners must rely on the meager legal structure imposed by the Partnerships Act, R.S.O. 1990, c. P.5.

Yes. The sources of liability of officers and directors are too numerous to list. This includes liability to company employees for pay and benefits, to the government for taxes, to shareholders and others for negligence. Officers and directors are answerable for crimes and offences committed by themselves and by the corporation. Lenders to a corporation frequently require personal guarantees (banker to business customer: “You have an excellent idea.  Do you own a house?”).