What is a Corporation
An incorporated company is one of the most common ways of conducting a business. The corporation is a separate person in the eyes of the law – it’s a separate legal entity. It’s “separate” because it’s a separate legal entity from the people who own the corporation (who are called shareholders). It’s a “person” because it has the capacity, rights, powers, and privileges of a natural person. This article aims to address some of the more important components and considerations when incorporating a company in Ontario.
Ownership and Management of the Corporation
The people that own the corporation are called shareholders and they are only liable for their investment in the corporation or the property that they transferred to the corporation, and nothing more. Shareholders are also generally not involved in the management of the corporation except in situations where the shareholders do want to control and manage the corporation (and take on the added liability), and this is done through the means of a unanimous shareholders agreement.
The management of the corporation is otherwise left to the directors who are the individuals elected by the shareholders to manage and supervise the management of the business and affairs of the corporation. The directors are the ones who have ultimate authority to make decisions for the corporation.
The initial first directors of the corporation must be named in the articles of incorporation. Any director(s), including any first director(s), must consent in writing to his or her election or appointment. The initial first director(s) will hold office from the time of the certificate of incorporation.
Directors may also delegate some of their powers to an officer, which makes sense given that it may be impractical for the directors to handle every single aspect of the corporation’s business. The directors can appoint and/or designate the officers of the corporation and specify what the officers’ duties are. There can be different types of offices to which an officer may be appointed and different degrees of control that are exercised by an officer; there is no real hard-and-fast rule. Some common types of officers in a corporation are the chief executive officer, chief financial officer, president, treasurer, and secretary.
How to Incorporate
Incorporating a company is done by an incorporator – who can be an individual or another corporation – and who sends the articles of incorporation to a director who endorses the articles of incorporation with a certificate of incorporation. The certificate of incorporation is proof that the company has been incorporated under the Ontario Business Corporations Act (the “OBCA”).
The articles of incorporation have a required format to them and must contain certain information. The Articles of Incorporation – Form 1 on the Ministry of Government Services (http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbforms.nsf/GetFileAttach/007-07116~1/$File/07116E.pdf) requests the following information:
- The corporation’s name
- The corporation’s registered head office in Ontario
- The number of directors. If the articles do not provide for cumulative voting, the minimum and maximum number of directors (the corporation must have at least one director except that an offering corporation is required to have three or more directors, of whom at least one-third are not officers or employees of the corporation or its affiliates)
- The names and addresses for service for each of the first directors (at least 25% of the directors must be resident Canadians, or, if there are less than four directors, at least one must be a resident Canadian)
- Whether there are any restrictions on the business the corporation may carry on or on the powers that the corporation may exercise
- The classes and any maximum number of shares that the corporation is authorized to issue
- The rights, privileges, restrictions and conditions (if any) attached to each class of shares and the authority of the directors with respect to any class of shares that may be issued in series
- Whether there are any restrictions on the issue, transfer or ownership of shares
- Any other provisions which the corporation wishes to include (note: you may want to deal with other matters in the corporation’s by-laws because they are easier to amend)
- The name and address for service of each of the incorporators
The Corporation’s Name
The incorporated company must have a registered name and this name must be approved before the corporation can carry on business in Ontario. This requirement prevents confusion or deception from the corporation having a name similar to another registered corporation in Ontario.
The corporation can have a numbered name assigned to it (which can be changed later by filing articles of amendment) or, alternatively, it can propose its own, unique name. For a unique name, the corporation, must submit the proposed name in the articles of incorporation along with an Ontario-biased or weighted computerized search report from Innovation, Science and Economic Development Canada’s automated name search system called NUANS. The NUANS report for the proposed name is generated separately, and, when submitting the articles of incorporation with a NUANS report for a proposed name, the NUANS report cannot be older than 90 days. There are also various rules dealing with the corporation’s name, which are governed by the OBCA and its Regulations, but which are beyond the scope of this article.
Registering a Corporate Name
As mentioned above, when filing articles of incorporation with a proposed corporate name, an Ontario-biased or weighted computerized search report from NUANS, dated no more than 90 days prior to the submission of the articles of incorporation is required. If filing the articles of incorporation electronically, they must contain the NUANS reference number, date of the report, and the proposed name that was searched. If no name is specified in the articles of incorporation, a numbered name will be assigned to the corporation.
Apart from certain exceptions, the business or affairs of the corporation can be regulated by by-laws that will be passed by the directors by way of resolution. Some common by-laws of a corporation include those dealing with setting a financial year-end, banking arrangements, election and appointment of directors, quorum of directors, term of directors, corporate officers, shareholder approvals, remuneration, shareholder meetings, etc.
Incorporation is only the first step which allows the business to come into existence as a legal person. However, there are other steps necessary in order to carry on the corporation’s business. These other steps are referred to as the organization process and include the making of by-laws or governing resolutions by the directors (and the approval of the same by the shareholders), issuing shares, appointing officers, holding organizational meetings, and other essential steps.