Chapter 2 - Submitting Articles of Incorporation
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Once you have decided to incorporate, there are some simple steps you
must take to set up your company. Federal corporations are formed by
filing articles of incorporation with Corporations Canada. In
filling out these basic forms, you will need to make some decisions on
the name of the business, location of registered office, who will
serve as directors, etc.
Appendix A of this guide contains a sample of Form 1 — Articles
of Incorporation completed for a basic type of company with only one
class of shares. Appendix B of this guide provides another sample of a
completed Form 1, but for a company with two classes of shares.
One form must accompany the articles of incorporation:
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Form 2 — Information Regarding the Registered Office and the Board of Directors
To incorporate under the CBCA, you must complete Form 2, bearing original signatures of the incorporator(s) (you may use copies of the form itself). If Form 2 and Articles of Incorporation are filed through Corporations Canada’s Online Filing Centre or are sent by fax, original signatures of the incorporator(s) are not necessary. However, signed copies of the original documents must be retained in the records of the corporation. (CBCA sections 258.1; CBCA Regulations 10, 11 and 12)
Deliver them to Corporations Canada at the address listed in the Contacts section. Corporations Canada will keep the documents on file and return a copy to you with your certificate of incorporation. It will also assign your company a corporation number, which will appear on the certificate of incorporation. Your business is incorporated as of the date of your certificate of incorporation.
To better assist you in completing these forms, the following
information is presented in the same sequence as the various items
appear in Forms 1 and 2.
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Chapter 2.1
Choose a Name
(Forms 1 and 2)
Form 1, Item 1
Every corporation needs a name. In order to protect the public and
avoid confusion, this name must be distinct from the names of all
other corporations. All Canadian jurisdictions regulate corporate
names to ensure that the public is not misled by confusingly similar
corporate names. The degree of scrutiny differs from one jurisdiction
to another. Corporations Canada applies the most rigorous of
standards for name granting in Canada.
What's in a Name?
A corporate name generally contains three elements:
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a distinctive element (perhaps a surname or other unique term)
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a descriptive element (e.g. Manufacturing, Consulting, Trading)
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a mandatory legal element (e.g. Corp., Inc., Ltd.).
Name Request
In order to see if your name of choice is available for registration under the CBCA for your
exclusive use anywhere in Canada, you must obtain a Canada-biased name search called a
Newly Upgraded Automated Name Search (NUANS®) report. A NUANS® report may be obtained in
two ways:
You can now order a federal NUANS® report online at the
NUANS® website from the NUANS® Real-Time system or from the Corporations Canada Online Filing Centre. The fee is $20 payable by credit card (American ExpressMD, MasterCardMD or VisaMD). The system provides direct access to the NUANS® search service but does not provide the professional
assistance and recommendations often available from a registered NUANS® search house. Because of this, you will have to ensure that you understand the regulations and policies which have to be met before the name will be approved by Corporations Canada. Your NUANS® report
that is generated may be rejected if the proposed name does not meet the requirements of the CBCA name regulations. A Corporations Canada publication, Name Granting Guidelines, features more information about the requirements for corporate names. This brochure,
as well as other relevant information, can be accessed at the Corporations Canada's website in the "Choosing a Name" section.
A NUANS® report may also be requested from a private company known as a search house. A search house is an independent, private sector business that can provide advice on the availability of your corporate name choice. You can find a list of these firms at the NUANS® website, or in the Yellow Pages of your telephone directory under "Searches or Records". There is a fee for this service.
Note that a NUANS® Report has a life of 90 days from the date it is requested.
Is the Name Acceptable?
You or your search house will then submit the results of the NUANS® search, along with your articles of
incorporation, to Corporations Canada for review to determine if the name requested is
available. Various tests are used, as explained in detail in the Name Granting Guidelines. Some of these tests are described below:
-
Does the proposed name contain any words or phrases that are prohibited?
Examples: "Parliament Hill," "RCMP," "Cooperative," "Air
Canada," "United Nations."
-
Is the proposed name obscene?
-
Is the proposed name too general?
Is it only a geographical name such as North West Inc., or only an
individual's name such as Joe Smith Inc.?
-
Is the proposed name so similar to the trade-mark or official name
of another corporation that both names appear to refer to the same
business? Or is it similar that it appears to be related to the
other business?
-
Does the proposed corporation have a foreign affiliate with a
similar name?
If so, it may be necessary to provide written consent of the
foreign affiliate and add an element to your proposed name to
distinguish it, such as ABBA Consulting Canada Inc.
If Your Name Is Refused
Clients at times have been surprised by a refusal to grant a name,
particularly if the NUANS® report appears to indicate that there are no
similar names already in existence. Corporations Canada
sometimes must reject a proposed corporate name simply because it has
insufficient background information on which to base a name granting
decision. If the name you have chosen is rejected, your articles of
incorporation will be returned to you, along with a request for you to
explain the name more fully. To help clients propose acceptable
company names, Corporations Canada has developed a Corporate
Name Information Form. The additional information you provide in this
form when requested to do so is often enough to persuade Corporations
Canada of the uniqueness of your chosen name. If not, you will then have
to choose an alternate name and obtain a new NUANS® report, at additional expense.
Pre-Approval of Name
Should you wish to ensure the availability of the corporate name you have chosen, in advance of filing your articles of incorporation (thus saving the filing fee), you can simply forward your NUANS® report to Corporations Canada requesting a name decision letter. If your name choice is accepted, the letter you receive in reply will point out that the selected name is reserved for the life of the NUANS® report, i.e., for 90 days from the date the report was requested. You may then proceed with preparing your articles of incorporation. On the other hand, if the name you have chosen is not accepted, you will be spared the effort and expense of compiling and submitting the articles of incorporation fruitlessly.
It is not always necessary to order and file a NUANS® report. You may
instead ask Corporations Canada to assign a number for your
corporation (e.g. 1234567 Canada Ltd.) at the time your articles of
incorporation are processed. Many SMEs and holding companies choose
this option when a corporate name is not important, thus ensuring
faster processing and saving the expense of ordering a NUANS® report.
Another possibility is to apply for a number name now and later submit
a NUANS® report along with articles of amendment for a change in name,
together with the appropriate fee. Some of our clients choose this
option when they want to be incorporated quickly, and realize there
may be a delay in finding a suitable name.
Form 2, Item 1
Restate your name request in Form 2, item 1. If
Corporations Canada approves your name choice, it will assign
a corporation number to be inserted in item 2 on both forms. For now,
you will leave item 2 blank.
(CBCA sections 10–12; CBCA Regulations 12–28)
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Chapter 2.2
Locate Your Registered Office
(Forms 1 and 2)
Form 1, Item 2
A CBCA company must have a registered office within Canada. The
purpose of the registered office is to establish a location where
official forms and notices can be delivered to the company. A post
office box may not be used as a registered office address.
Name the province or territory in Canada where the registered office is to be located. Do not set out a specific civic address in Form 1. If your company changes addresses later on, within the province or territory, you will have to submit a Form 3 indicating the change of address, for which no filing fee is required. (A change in the province or territory is done by filing Articles of Amendment and applicable filing fee.)
Form 2, Items 2 and 3
Copy the location information from Form 2, item 2.
Provide the civic address of your registered office in Form 2, item 2
and the mailing address (under Form 2, item 3) if different from that of registered office.
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Chapter 2.3
Describe Your Shares
(Form 1)
Form 1, Item 3
An incorporated business can issue shares, which represent ownership
interest in the corporation and give the holder a say in how the
company is being run through the rights attached to the shares. You
must specify in your articles of incorporation how many classes of
shares and the maximum number (usually unlimited) for each class your
company is authorized to issue. Unless you otherwise specify here, one
share entitles the holder to vote at shareholders' meetings.
Shares are property, much like a car or house. The shares and the
rights that go with them (you may often hear the phrase "rights
that are attached to the shares") can be transferred (sold),
provided that the transfer is made in accordance with any conditions
or restrictions that apply to the particular shares, discussed further
below.
Under the CBCA any "person" may hold shares in any company.
In addition to an individual, the definition of "person"
includes legal entities that are not individuals, such as trusts,
mutual funds and other corporations.
Classes of Shares
Shares in general have three inherent rights:
-
the right to vote
-
the right to receive dividends (if any have been declared by the
board of directors)
-
the right to receive the property of the corporation remaining
after its dissolution.
The CBCA permits a company to distribute these three rights among more
than one class (type) of shares. They can be distributed in any
combination, so long as all three rights are being assigned. In other
words, looking at all of the share classes together, each of these
three fundamental rights is assigned to at least one class but not
necessarily to all.
Appendixes A and B of this guide illustrate how different classes of
shares can be named and described in the articles of incorporation.
There is no limit on the number of classes of shares you set out in
the articles of incorporation. Classes may be assigned names such as
preferred or common, or they may simply be alphabetized such as Class
A, Class B, etc. Articles of incorporation with more than one class of
shares often provide for unlimited common and preferred shares, as
shown in the sample in Appendix B of this guide. The common shares
have the right to vote, the right to receive dividends behind the
preferred shareholders, and the right to share in the property upon
dissolution. The preferred shares have no voting rights but are given
the right to receive dividends and to share in the property on
dissolution ahead of the common shares. If there is no difference
between the shares (i.e. only one class is described in the articles),
they are usually referred to as common shares.
These differences in rights can be useful if you have investors with
different objectives. Often voting shares are issued to the person(s)
actually running the company (control shares), while special or
preferred shares may be issued to partners or investors who are not
involved in running the business but who have invested money in the
company with the expectation of profit and income (investment shares).
Thus, the common shareholder (having votes) runs the company (with the
power to elect directors, approve all major activities, etc.) but may
be entitled to dividends only after the preferred shareholder (the
investor) is paid dividends.
(CBCA sections 6, 24, 26, 42, 43, 140; CBCA Regulations —
Form 1)
In most new corporations, it is probably not necessary to create
different classes of shares on incorporation. If the company is a
success and it is determined later that a more complex share structure
is needed, professional advice should be sought to make sure that the
best structure has been chosen and that the changes to your articles
(called "articles of amendment") are properly prepared.
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Chapter 2.4
Set Out Restrictions on Share Transfer
(Form 1)
Form 1, Item 4
When you are incorporating your company, you must decide whether or
not to place restrictions on the transfer of your company's
shares. Restrictions on the transfer of shares permit the shareholders
and directors to control who holds shares in your company, because
they limit the ability of shareholders to resell their shares. But the
main reason to place these in your articles is to ensure that your
company is a private company and so will not have to comply with the
registration and prospectus filings requirements and other related
procedures set out in the CBCA and provincial/territorial securities
law.
Restrictions on share transfer are one of three restrictions required
for a company to be a private company. The remaining two are discussed
in Section 2.7, Other Provisions:
Private Company Restrictions/Other Clauses, of this guide.
The most common share transfer restriction provides that shares cannot
be transferred by a shareholder without the prior consent, by way of
resolution, of the board of directors or of a majority of the
shareholders (see Schedule I of Appendixes A and B of this guide).
You should note that you have to make reference to these restrictions
on the share certificates issued to shareholders in your company.
(CBCA sections 6, 49)
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Chapter 2.5
Choose Your Directors
(Forms 1 and 6)
Form 1, Item 5
Set out the number of directors of the corporation. We recommend you
specify a minimum and maximum number of directors, as shown in
Appendixes A and B of this guide, as a range provides more flexibility
than a fixed number and may avoid the expense of having to submit
articles of amendment should you decide later to change the fixed
number.
Form 2, Item 4
You must let the public and the Director under the CBCA know the
identity and residential addresses of the directors of the company.
Corporations Canada will review your Form 2 to ensure that
your company has one or more directors and that more than 25 percent
of the directors are ordinarily resident in Canada. If the corporation
has less than four directors, then at least one must be a resident
Canadian. Corporations in sectors subject to ownership restriction
(like airlines and telecommunications) or corporations in certain
cultural sectors (like book retailing, video, film distribution) must
have a majority of resident Canadian directors. The number of
directors listed in Form 2, item 4, must be within the range indicated
in Form 1, item 5.
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Chapter 2.6
Set Any Restrictions on Activities
(Form 1)
Form 1, Item 6
Set out the restrictions, if any, on the company's business
activities. Most companies do not provide any restriction and simply write "none" in the space provided.
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Chapter 2.7
Other Provisions: Private Company Restrictions/Other Clauses
(Form 1)
Form 1, Item 7
In addition to the restrictions on share transfers noted in Form 1, item 4, many companies adopt the two remaining "private company restrictions." They are inserted in the articles of incorporation
to ensure that your company is a private company, and so will not have
to comply with the registration and prospectus filings requirements
and other related procedures set out in the CBCA and
provincial/territorial securities law.
Most small businesses are private companies, and virtually all start
out that way. Therefore, private company restrictions should appear in
the original articles of incorporation of almost every small business.
To be a private company, you must restrict the number of shareholders
in your company to 50 or fewer (not including employees). This is done
by adding a clause to this effect in your articles of incorporation
(see Schedule II of Appendixes A and B of this guide).
To be a private company, you cannot offer shares to the public. You
must add a clause to this effect also in your articles of
incorporation (see Schedule II of Appendixes A and B of this guide).
Note that although share transfer restrictions are set out in a
separate item in your articles of incorporation, all three types of
restrictions must appear for your company to qualify as a private
company.
If you later decide to offer shares publicly, these restrictions will
have to be removed by submitting articles of amendment and paying the
appropriate filing fee. However, you will have the comfort of knowing
that all previous share issuances were valid, since there was no need
to comply with registration and prospectus requirements under
securities law.
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Chapter 2.8
Sign Your Articles of Incorporation
(Forms 1 and 2)
Articles of incorporation are signed by the incorporator(s), who is
(are) competent, at least 18 years of age and not in a status of
bankrupt. Incorporators may — but need not — be directors or
shareholders of the company after it is organized.
In addition to signature(s), Form 1 requires the names and addresses
of all incorporators. Form 2 requires only one signature, along
with the date and position of the informant. Once you are
incorporated, Forms 3 and 6 and your annual return (Form 22) can be
signed by your lawyer, accountant or anyone who has the relevant
knowledge of your corporation and who is authorized to sign these
documents by your company's directors. (CBCA subsection 262.1(2))
All forms must be submitted to Corporations Canada,
either by traditional means or electronically. Each form must bear
original signatures, unless submitted electronically, in which case
the paper copy, manually signed, is to be maintained in the records of
the corporation.
(CBCA sections 5–9)
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Chapter 2.9
Remit the Filing Fee
The filing fee must be submitted to Corporations Canada along with the required forms. It may be paid by cash, American Express®, MasterCard®, Visa® or by cheque made payable to the Receiver General for Canada in the amount of the applicable filing fee. Filing fees are lower when paid online (by American Express®, MasterCard® or Visa® only) than when paid through any other means. In the spring of 2001, the fees were reduced to $200 when submitted online and $250 for all other means. When payment is made through the Corporations Canada Online Filing Centre, the Strategis Secure Online Electronic Commerce System ensures that online credit card payments are processed with complete security.
(CBCA Regulations — Schedule II)
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