How to Incorporate in Ontario and Canada

In order to form a corporation in Ontario, Canada or any other province, you will need to prepare and file articles of incorporation. The certificate of incorporation and articles of incorporation are the documents that bring your corporation into existence, and set out certain features of the corporation, for example, any restriction on the business that may be carried on, the classes of shares that can be issued and any share transfer restrictions. As such, proper preparation of your articles of incorporation is vital to your business.

You’ll include the following in your articles of incorporation: corporate name, registered office address, number of directors (fixed or range), business restriction (if any), share classes and their rights, privileges, restrictions and conditions, restrictions on transfer of shares and other provisions (if applicable).

Check out our blog post for more information on what’s included in your Articles of Incorporation.

Pursuant to Ontario’s Bill 213, the residency requirement for directors of Ontario corporations has now been removed effective July 5, 2021. This change provides greater flexibility for non-Canadians who wish to incorporate in Ontario as you can now incorporate with non-resident directors (rather than having to find a resident Canadian to sit on the board or incorporating in another jurisdiction).

For Federal corporations, there is a resident Canadian director requirement. At least 25% of the directors must be resident Canadians, but where a corporation has less than 4 directors, at least 1 needs to be resident Canadian.”

So, if one person is on the board, that person needs to be resident Canadian and, if two people are on the board, at least one of two needs to be resident Canadian. We understand “resident Canadian” to mean that the person is a Canadian citizen or has PR status and ordinarily lives in Canada. If you do not have this status, you can still incorporate an Ontario or federal company so long as you can find a resident Canadian to sit on the board of directors with you (like a close friend or relative). If that person agrees to act, you may have to obtain directors insurance or provide an indemnity to them (i.e. agree to cover their costs, expenses or losses) if they encounter liability through no fault of their own while acting as a director.

This is a common question. Basically,

Shares are the ownership units of a corporation. If only one person owns shares, that person owns 100% of the corporation. If two people each own 100 shares of a corporation, then those two people each own 50% of the corporation and so on.

There are two basic types of shares:

If you work with Ordower Law on your incorporation, we’ll discuss the share classes that make sense in your circumstances.

If you want to read more about setting up share classes, check out this article.

If your company wants to “carry on business” in a particular province, it must be registered in that province. Whether a person is carrying on business is a question of fact that requires consideration of relevant facts. Note that generally speaking, you will not be carrying on business in another province if you are located in Ontario, but ship an individual or business products from Ontario or provide individuals or businesses services from Ontario.

Unlike individuals, corporations can choose their year-end for tax purposes (known as a fiscal year). For individuals, your tax year-end is December 31^st and your T1 return is due April 30^th – there’s no choice. For corporations, here are a couple of thoughts:

A business name or trade name allows you to carry on business under that name in the specific province you registered, but doesn’t really offer you any name protection.  Whereas a trademark actually offers you name protection – meaning that you may be able to prevent others from using that name.

Simply put, a shareholders’ agreement is a contract between the owners of a company that regulates their rights and obligations in a variety of situations relating to the company’s ownership and operations.

Shareholder agreements usually deal with the following: decision making of the board and shareholders, funding obligations, sale events for death, disability, insolvency, default and others, share transfer restrictions, rights of first refusal, divorce provisions such as a shotgun clause, defining roles and responsibilities, restricting competitive activities and maintaining confidentiality and others.

Check out our blog post for more information on Shareholders’ Agreements.

For a more detailed discussion of the provisions found in these agreements, you may want to review this article Anatomy of a shareholders’ agreement.

Certain regulated professions permit their members to operate through a professional corporation. These professions include lawyers, accountants, doctors, dentists and a number of other regulated health professionals. The articles of incorporation for professional corporations have certain restrictions relating to the business that the corporation can carry on. In addition, generally speaking, only members of the profession can be shareholders of a professional corporation.

It is important to note that professionals can’t shield their professional liability to clients or patients by incorporating. They incorporate to take advantage of corporate tax benefits, including the small business deduction which effectively lowers corporate income tax rates on active business income.

After incorporating a professional corporation, professionals will have to prepare and file the application materials with their respective College or other governing body to obtain a certificate of authorization to practice their profession in Ontario through the professional corporation. The materials that are submitted as part of the application typically consist of an application form, a copy of the certificate of incorporation, a declaration signed by a company director, a corporate profile report obtained from the Ministry of Government and Consumer Services and payment of an application fee directly to the College or other governing body (which is an additional cost). These fees are usually non-refundable and average out at around $400 depending on your specific profession.

You can also read our guide to professional incorporations in Ontario on our blog.

If you are a lawyer, accountant, Physician, Dentist, or other regulated health professional, we can certainly help you incorporate.

In 2021, a new regulation was introduced under the Real Estate and Business Brokers Act (Ontario) which gave real estate agents in Ontario the right to operate their real estate business through a personal real estate corporation (often referred to as “PREC”), and have any remuneration owed to them paid by their brokerage to the PREC. Prior to this, real estate agents could only operate as sole proprietors. This meant that all real estate commissions earned by a real estate agent were subject to tax at their personal tax rates instead of the lower small business tax rate that other professionals were able to take advantage of.

With the introduction of this regulation, Ontario realtors are finally able to take advantage of the tax savings offered to other regulated professionals.

What is a Personal Real Estate Corporation (PREC)?

A Personal Real Estate Corporation (or PREC) is a corporation that is incorporated in Ontario but that is subject to certain regulations and restrictions in the way it can be organized, who it can issue shares to and what kind of remuneration it can receive. The PREC must be compliant with the requirements set out in the regulations in order for real estate agent’s brokerage to be permitted to pay the real estate’s remuneration to the PREC.
Although a PREC is not considered a professional corporation under the Business Corporations Act (Ontario), it functions in a very similar way.

How do PRECs work?

When the personal real estate corporation is formed, you have created a new person at law that receives the revenue, pays the expenses and is a separate taxpayer for your real estate business. Once incorporated CRA will automatically assign a new business number to this corporation. Your PREC will need to register for a new HST number and a payroll number, if applicable.

Since the PREC, and not the real estate agent, will be receiving the commissions from the brokerage, any money paid to the real estate agent personally will generally be paid from the PREC to the real estate agent by way of dividend or salary. By leaving money in the PREC (i.e. savings over and above your living expenses), you will be effectively lowering your income tax burden in a given year and can use the savings from that tax deferral for other investment purposes

Benefits of Incorporating a PREC:

Tax Savings: The main reason a real estate agents will want to incorporate an Ontario Personal Real Estate Corporation is for tax savings. By incorporating a PREC, real estate agents will be able to take advantage of the small-business deduction that is available on active business income for Canadian Controlled Private Corporations. The corporate tax rate is ~12.5%

Tax Deferral: By forming a PREC, real estate agents will also have the ability to leave behind a portion of their business income in the PREC and ultimately defer the payment of personal taxes on this income until the real estate professional decides to pay themselves.
Flexibility of Remuneration: PRECs allow you to access different types of payment options. Generally speaking the PREC can pay the real estate a dividend or the real estate agent can be an employee of the PREC and receive a salary.

Income Splitting: Because the regulations allow family members to own non-equity/non-voting shares of a PREC, real estate agents may be able to benefit from certain income splitting arrangements. By issuing family members non-voting shares of the PREC, dividends can be paid to those shareholders in amounts and at times determined by the real estate agent. Those family members will then have to declare the dividend income on their personal tax returns instead of the real estate agents. Prior to issuing shares to family members or declaring dividends, you should speak to your accountant. Tax rules relating to income splitting are important to understand because the ability to income split with family members is subject to certain restrictions. Make sure you speak to your accountant before deciding to do so.

Next Steps:

Here at Ordower Law, we are committed to ensuring that this process is as smooth as possible for you. To help you with incorporating your PREC, we offer a full-service offering including incorporation and organization of your company, introductions to accountants if you don’t have one, informing RECO about your corporation, as well as traditional corporate services you may need in the future. Please contact us using the form below to get started or speak with a member of our team.

For additional information, please see our more detailed blog article on Personal Real Estate Corporations – PRECs

Once you have incorporated, here are a few additional topics to consider:

When incorporating a new company, you will get a business number and may obtain an HST and/or payroll number. It’s important to understand when and why you should get these numbers:

The Ontario Business Registry (“OBR”) is a secure online platform that allows businesses to complete transactions online with the Ontario government, including incorporating and registering business names for sole proprietorships or partnerships. Once your business is incorporated, the OBR will allow you to complete additional filings online for your corporation, including filing Articles of Amendment, Articles of Dissolution, the Initial Return, Notices of Change and Annual Returns. The Ontario Business Registry is available 24 hours a day, 365 days a year.

How to access the Ontario Business Registry

To access the Ontario Business Registry, you will need to register for a ONe-Key Account, which can be done through the official OBR website. Once your account is created, you will be able to access the OBR.

To access your corporation’s profile, log in to your ONe-Key Account and click on “Create a Profile,” providing the required information when prompted. Enter your corporation’s name or number in the search box, select the associated link, and enter your company key. You will then be able to access your corporation’s file.

For companies incorporated after October 19, 2021, a Company Key is automatically issued. For companies incorporated before this date or those who have misplaced their Company Key, a request can be made through the OBR. The Ontario Ministry will then send you the Company Key to either the official email address on file or the registered address associated with the corporation.

What information is listed in the Ontario Business Registry?

With access to your corporation’s profile, you can access detailed information surrounding the corporation, including the Ontario corporation number (OCN), business number, incorporation date, status, official email, and more. Furthermore, you have access to important details regarding the structure of your corporation including its address, director(s), officer(s), and any filed business name registrations.

Can I make any changes to my corporation through the Ontario Business Registry?

The Ontario Business Registry allows you to make various changes to your corporation, each requiring different filings, some of which may involve associated fees. To ensure that you are submitting accurate information and completing the correct filings, it is important to seek guidance from a lawyer.

Another available option is the business name registration, which allows your corporation to operate under another name. Prior to proceeding, consult with a lawyer to ensure that this is the correct option for your corporation’s goals.

Once you have completed your filings, documents related to your submission may be sent to your designated contact email or accessible under the filings tab in your corporation’s profile,

Can I order reports about my corporation through the Ontario Business Registry?

The Ontario Business Registry also allows you to order corporate reports. There are three different types: (1) Corporation Profile Report, (2) Document Copies, and (3) Certificate of Status. Select the desired report type and fill out the required information. You will receive your documents in the email you provided when ordering. If you require assistance when ordering reports for incorporation or renewal, Ordower Law is here to assist.

At Ordower Law, we can help you with any filings or changes you would like complete for your corporation and ensure that you have the proper documentation to reflect these changes.

Access the Ontario Business Registry

Once you have incorporated, here are a few additional topics to consider:

Ontario corporations are required to prepare and maintain, at its registered office or at such other place in Ontario designated by the directors:

There are similar provisions that apply to federally incorporated companies. This is a good summary of the record keeping and other obligations for federal corporations.