Business & Corporate
Frequently Asked Questions
What are my options for forming my company?
The following are the more common methods of structuring of your business:
- Sole Proprietorship – Carrying on business under your own name, or operating under a business name. The individual would be fully liable for debts of the business, and profits/losses flow directly through the individual owner. Certainly easy set-up, however individuals are exposed to personal liability.
- Partnership – Under a partnership, individuals come together and carry on business together under the name of the partnership. Either all partners’ liability for the debts of the partnership will be unlimited (general partnership) or certain partners’ liability may be limited (limited partnership). Relationships and duties are defined through the partnership agreement. Partnerships do not have a distinct legal personality, meaning it is not considered a separate legal entity, so profits and losses of the business proportionately flow through the individual partners and taxes are paid personally.
- Corporation – By conducting business through a corporation, a company takes on a separate and distinct legal personality and becomes its own separate legal entity. Shareholders (the owners of the company) avoid any personal liability for the debts of the corporation. Directors (the managing minds of the company) are appointed by the shareholders to oversee the management of the company. The corporation pays its own income tax, which is lower than individual tax rates. However, individual shareholders cannot use the business losses of the company to set off against personal income.
Each option has its own unique set of considerations, and we encourage anyone interested to contact us to learn more about their options for structuring the company.
Why have I seen some companies use a numbered company name, whereas others have a proper business name for their corporate name?
By default, when a company is incorporated it will be given a numbered company name, generated in order of the requests for incorporation. It is also possible to request that the company be incorporated under a specific name, or that its business name be registered.
Is there a difference between a federal corporation and a provincial corporation?
Yes. There are many differences between federal and provincial corporations. Federal corporations are governed by the federal legislation Canada Business Corporations Act and provincial corporations by the Ontario Business Corporations Act. Choosing the jurisdiction under which the company will be governed is a matter which requires certain practical and legal considerations. We recommend that anybody contemplating the decision as to which jurisdiction to incorporate under consult a lawyer to weigh the advantages and disadvantages based on the particular situation.
I would like to sell my business, am I selling my assets or my shares?
The sale of a business could be carried out under the sale of the assets (or substantially all of the assets) or the sale of the shares (or the controlling shares) of the business. In an asset sale, only the assets of the company are being assumed by the purchaser (together with any liens or encumbrances against the assets). In a share sale, all of the company’s assets and liabilities would be assumed by the purchaser. We recommend that anybody contemplating selling their business consult with a lawyer and accountant as to any tax or legal implications of proceeding a certain way.
Does my not-for-profit organization need to be incorporated?
Many not-for-profit organizations exist without much of a formal legal structure. Associations operate mostly through agreements between members setting out the purpose and responsibilities, however the association itself has no distinct legal personality therefore it makes it difficult for the organization to enjoy many benefits of a formal legal structure. By incorporating under the federal or provincial not-for-profit legislation, the organization retains a separate legal existence from its members (shielding members from personal liability), and the not-for-profit legislation has recently been updated to make operating not-for-profits more flexible.
How does my medical practice become incorporated?
In Ontario, there is no separate legislation under which a medical practice will be incorporated. The practice would first become registered as a provincial corporation, and depending on the professional college which governs your practice, a separate application is made to the professional college for the authorization to have your practice continued under the professional corporation. There are certain rules and restrictions that must be in place when the corporation is first formed, therefore we recommend anyone interested contact us prior to incorporating to ensure the proper foundation is in place.
What is the Personal Property Security Act?
Much like how real property has a centralized system of registration in Ontario, the Personal Property Security Act (PPSA”) creates the framework for a province-wide system of registration for personal property (i.e. vehicles, equipment, inventory, accounts). For example, under leasing or financing arrangements, secured creditors will want to ensure their security against the collateral is formally recorded under the PPSA so that any future creditor knows that the collateral has already been pledged and will have a prior claim against it.