Incorporation

This document identifies some of the issues involved in incorporating a business and provides you with a summary of the incorporation process. This document is only meant as a guide and should not be considered all-inclusive; therefore, the Canada-Yukon Business Service Centre will not accept responsibility for any business decisions made based on the information provided.

The incorporation process can be very complex. You may wish to obtain legal and tax advice to assist you with the preparation of the incorporation documents and shareholders' agreements.

TABLE OF CONTENTS

1. Overview
2. Territorial or Federal Incorporation
3. Territorial Incorporation Process
4. Federal Incorporation Process
5. Federal Incorporation On-Line
6. Small Business Guide To Incorporation

1. Overview

Incorporation

When a business is incorporated, a separate, distinct legal entity is created. A corporation is also known as a limited company and generally has all the legal powers of an individual person. It can enter into contracts, own property and buy and sell goods, but it is also taxed as is an individual, and it can be sued as can an individual. The owners, or those who hold shares or stock in a corporation (shareholders), may or may not be directly involved in the day-to-day operations of the corporation.

Advantages and Disadvantages of Incorporating

There are several major pros and cons associated with incorporating a business. For further detailed information you should seek professional advice.

• Limited liability: if the corporation goes bankrupt no shareholder has personal liability for the debts, obligations or acts of the corporation (beyond the share capital invested). Creditors of the company are only entitled to the assets of the company and not those of the shareholders.
• Access to capital: raising capital is often easier for corporations than other forms of business.
• Continuity: unlike proprietorships and partnerships, a corporation is a separate legal entity; its existence does not depend upon continuous membership of its shareholders. Shares in a corporation may be bought and sold and the corporation continues to operate even though ownership changes.
• Taxes: corporations can have tax advantages over proprietorships and partnerships.

Disadvantages

• Cost: start-up costs for corporations are higher than those of a proprietorship or a partnership because of the higher incorporation fee. Due to the complex nature of a corporation it may be necessary to retain the services of a professional advisor. Corporations may also have higher legal and administrative costs because corporate tax returns are more elaborate.
• Bookkeeping: corporations require more record keeping because they are more closely regulated than proprietorships and partnerships.
• Taxes: operators of proprietorships and partnerships can claim operating losses against personal income. This may be of particular importance in the early years of a business when operating costs are high.

2. Territorial or Federal Incorporation

You can choose to incorporate either territorially or federally. Depending on your company needs, there are advantages and disadvantages associated with both types of incorporation. You should seek sufficient advice if you are unsure about the type of corporation best suited for your company.

A federal corporation has the right to do business in any territory or province, whereas a territorial or provincial corporation may be restricted from conducting business in another province or territory if its corporate name is identical or similar to an existing corporation in the province or territory. Federal incorporation gives your company name added protection and guarantees its usage across Canada

Depending on the type of business you are considering, you may be required to incorporate federally. For example, if your company is one that involves inter-provincial transport, it is necessary to be federally incorporated. You should consider federal incorporation if you want to carry on business in more than one province or outside of the country. The heightened name protection provided to federal corporations is also often given as a reason for choosing incorporation under the Canada Business Corporations Act (CBCA). This is seen as an important element of the right to carry on business throughout Canada.

Once federally incorporated, the corporate name has a protected status second only to trade-mark protection. CBCA corporations, like companies set up under any of the other incorporating jurisdictions, may be required by a province or territory to register to conduct activities in that jurisdiction, but the enshrined right to carry on business across Canada, which is unique to CBCA corporations, ensures that the corporation will be able to operate across the country under its approved federal corporate name.

3. Territorial Incorporation Process - Government of Yukon

Territorial corporations are governed by the Business Corporation Act. This Act stipulates the rights of shareholders, directors and other parties. Copies of this Act can be obtained from the territorial Queen's Printer for a nominal fee by calling (867) 667-8573. It is also available electronically, free of charge, on the Canadian Legal Information Institute Web site at http://www.canlii.org/yk/laws/sta/20/20041124/whole.html

Step 1
Contact the Corporate Affairs Branch at the address below to obtain the kits required to incorporate your corporation and to select an acceptable name for the corporation. The two kits "Incorporation" and "Selecting a Proposed Name" will provide you with all the information for this process.

Corporate Affairs
Department of Community Services
Government of Yukon
Box 2703
Whitehorse, Yukon Y1A 2C6
Tel: (867) 667-5314
Toll Free (In Yukon): 1-800-661-0408, local 5314
Fax: (867) 393-6251
Email: corporateaffairs@gov.yk.ca

Step 2
A corporation needs a distinctive name. The kit for selecting a name sets out the procedure for selecting a name. It indicates a name search report must be obtained from a private-sector name search firm. In the Yukon there are no private-sector name search firms. The search must be conducted through the Government of Yukon (Corporate Affairs Branch) for a $40 fee. Corporate Affairs will advise you if the name you have chosen conflicts with other corporate, proprietorship or partnership names.

Step 3
Once the name you have selected for your corporation has been approved, you must send the incorporation fee of $225, as well as the appropriate documentation to Corporate Affairs for final approval. The forms that must be submitted at this time are as follows:

• Form 1:  Articles of Incorporation
• Form 3:  Notice of Registered Office
• Form 6:  Notice of Directors

Corporate Affairs will determine whether the documentation is suitable.

Step 4
If the documentation meets the requirements of the Act, Corporate Affairs will issue a Certificate of Incorporation. A corporation only comes into existence when the Certificate has been issued.

For more information on Territorial Incorporation, please call Corporate Affairs at (867) 667-5314 / Toll Free (In Yukon) 1-800-661-0408, local 5314 or visit their Web site at http://www.community.gov.yk.ca/corp/index.html

4. Federal Incorporation Process - Government of Canada

Federal corporations are governed by the Canada Business Corporations Act (CBCA). A complete copy of the Act is available electronically on the Corporations Canada Web site at http://corporationscanada.ic.gc.ca/epic/internet/incd-dgc.nsf/en/h_cs01914e.html

If you wish to incorporate federally using the traditional paper format, please do the following steps:

Step 1
Contact Corporations Canada at the address listed below to obtain an information kit on federal incorporation. A copy of the kit is also available electronically on the Corporations Canada Web site at http://corporationscanada.ic.gc.ca/epic/internet/incd-dgc.nsf/en/cs02717e.html The kit will provide you with all the information you will require for completing the incorporation process.

Corporations Canada - Industry Canada
9th Floor, Jean Edmonds Towers South
365 Laurier Avenue West
Ottawa, Ontario K1A 0C8
General Inquiries: (613) 941-9042
Fax: (613) 941-0601
Toll-free: 1-866-333-5556
Email: mailto:corporationscanada@ic.gc.ca

Step 2
Under the Canada Business Corporations Act, if a business is not to have a numbered name (e.g., 123456-7 Canada Inc.), then the business must conduct a national name search, known as a NUANS. A Canada-biased name search can be done online through Corporation Canada's website (On Line-Filing Centre) or through a private-sector search firm. The Yukon has no private-sector name search firms. However, the search can be done through the Government of Yukon (Corporate Affairs Branch) for a $40 fee.

Corporations Canada has published a document entitled Name Granting Guidelines to help you understand the process of reserving a corporate name prior to incorporation. A copy of this document can be obtained from Corporations Canada at the Ottawa address listed above. You can also view a copy of the guide on the Canada Corporations Web site at http://corporationscanada.ic.gc.ca/epic/internet/incd-dgc.nsf/en/h_cs01408e.html

Step 3
Once the name that you have selected for your corporation has been approved, you must send the filing fee of $200 (if you submit on-line) / $250 (for all other means), as well as the appropriate documentation for final approval to Corporations Canada (see mailing address above).

The forms that must be submitted are as follows:

• Form 1: Articles of Incorporation
• Form 2: Information Regarding the Registered Office and Board of Directors

Step 4
Corporations Canada will check that your articles are complete and in proper form and that the name is acceptable. If so, they will issue a Certificate of Incorporation showing the date of receipt of your articles as the effective date of incorporation. (If you prefer, you may request a later incorporation date instead.)

For further information on federal incorporation, please call Corporations Canada at (613) 941-9042 / Toll Free 1-866-333-5556 or visit their Web site at http://corporationscanada.ic.gc.ca/epic/internet/incd-dgc.nsf/en/Home

5. Federal Incorporation On-Line

Federal incorporation services are available through the Internet under the Corporations Canada On-line Filing Centre. This makes federal incorporation a very simple and less expensive process. You can send all the required forms through the On-line Filing Centre. When payment is made through the On-line Filing Centre, the Strategis Secure On-Line Electronic Commerce System ensures that on-line credit card payments are processed with complete security.

For more information on incorporating on-line, please visit the Canada Corporations Web site at http://corporationscanada.ic.gc.ca/cgi-bin/sc_mrksv/corpdir/corpFiling/register.cgi?lang=e

6. Small Business Guide to Federal Incorporation

The purpose of the Small Business Guide to Federal Incorporation is to give the reader a general overview of the federal corporate law under the Canada Business Corporations Act (CBCA). The guide provides step-by-step instructions on incorporating a business and offers helpful suggestions, answers to frequently asked questions and sources of more information. It provides the basic knowledge and tools that business owners and operators need to incorporate and operate a small or medium-sized private company under federal corporate law. Included are guidelines for incorporating using the traditional paper format and for incorporating on-line.

For more information, please visit the Corporations Canada Web site at http://corporationscanada.ic.gc.ca/epic/internet/incd-dgc.nsf/en/h_cs01914e.html

DISCLAIMER
Information contained in this document is of a general nature only and is not intended to constitute advice for any specific fact situation. Users concerned about the reliability of the information should consult directly with the source, or seek legal counsel.

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