Do I Need a Lawyer to Incorporate My Business?

By of Merovitz Potechin LLP on Tuesday May 30, 2023.

Incorporating a business is a big step for entrepreneurs. You want to make sure it’s done right. Incorporating a business on your own through a third-party website might seem like a cost-effective approach, however these sites fail to include all the steps necessary to incorporate and organize the corporation properly under provincial and federal law.

Incorporation is a 2-step process

Incorporating a business is a 2-step process. Most online sites complete the incorporation step but fail to address the organization step. Failure to complete the second step renders your incorporation vulnerable to dissolution – by the Ontario Ministry of Public and Business Service Delivery if you incorporate provincially and Corporations Canada if you incorporate federally (the “Ministry”).

In completing an incorporation, the following must be done:

1. An application that includes the articles of incorporation must be prepared and filed with the Ministry;
2. The Ministry must issue a certificate and articles of incorporation; and
3. Organizational resolutions must be prepared. These resolutions organize the new corporation and issue shares to the shareholders. Additionally, an information return, which informs the Ministry about its organization must be filed with the Ministry within 60 days of incorporation.

If you incorporate online, you will obtain a very basic and generic version of the articles of incorporation and the second step, which requires the preparation of organizational resolutions, will be missing entirely.

Organizational Resolutions

Fulfillment of step 2 is completed by lawyers because it requires knowledge of federal and provincial legislation. A lawyer completes organizational resolutions for the corporation, which include the following, all required by law:

·         Appoint the directors and officers;

·         Issue shares to shareholders, specify the amount of the shareholdings, class of shares, and percentage of ownership;

·         Confirm the fiscal year end;

·         Confirm the corporation’s bank;

·         Confirm the corporation’s accountant or auditor;

·         Confirm the corporation’s solicitor;

·         Provide consent to exempt itself from the requirement to prepare audited financial statements, if authorized by the legislation;

·         Indemnify directors and officers; and

·         Obtain an official minute book that houses all corporate records.

Registered shareholders are entitled to vote, receive any interest, dividend or payment issued by directors, and otherwise have all the rights and powers attached to the shares they own. Through their exclusive voting rights, shareholders elect the board of directors of the corporation. To learn more about the importance of shareholders, visit our blog: Tips for the New Entrepreneur Part 2: Incorporation, Share Structure and Shareholders’ Agreements.

The directors of a corporation are given significant powers, ranging from broad general powers which include managing the business’s affairs, to more specific powers such as declaring dividends and issuing shares. Directors are required to act in the “best interests” of the corporation, which includes consideration of the immediate interest of current and future shareholders.

Without shareholders and directors, a corporation cannot exist, and this is why completing step 2 is important.

Once this second part of the process is complete, a lawyer will file a form to report to the Ministry that the requirements of step 2 have been completed. Without this filing, the corporation is non-compliant, and the Ministry can forcibly dissolve the corporation. Reviving the corporation after a dissolution would be more costly to you than if you engaged a lawyer to assist you with the incorporation in the first instance.

Peace of Mind

Using a lawyer gives you the peace of mind and assurance that the incorporation was created and organized properly. Authorizing your lawyer to work with your accountant also ensures that the corporation will be set up to maximize tax planning and income splitting opportunities available to the shareholders.

When using online sites to complete legal documents, you roll the dice. There is no gamble when using a lawyer.

How we can help

We handle incorporations daily and understand the process. We also monitor changes to the relevant legislation and update our templates accordingly. If you are considering incorporating your business, or have questions about the process, please contact our Business Law Lawyers.