Ready to incorporate a business? There are a lot of considerations around incorporating or becoming a sole proprietorship, and it can also feel daunting when you're unfamiliar with the process. Incorporating your business in Canada can be especially complex if you are a health professional, as there are additional considerations and steps to take. Incorporating a business means creating a new separate legal entity from the business owner to operate out of - but it is so much more than that!

You may be wondering what type of corporation to create, what paperwork needs to be filed and how long it will take to incorporate - all valid questions that should be taken into account before moving forward. There are personal and business obligations regardless of what business structure you choose, so knowing the ins and outs of incorporating is key to making sure your business runs smoothly in the long run.

Should You Incorporate?

In this article, you’ll learn about the different types of corporations available in Canada, the pros and cons of incorporating your business, the legal and tax benefits, the process for registering a corporation, how to maintain an incorporated business, and the benefits associated with incorporating your business. Ready to learn if a sole proprietorship or corporation is right for you? Read on to get started!

But first, learn how incorporating might cost you more than it saves you with our Free Workbook!

What is a corporation, and what are the benefits of incorporating in Canada

A corporation is a separate legal entity from the business owner. An incorporated business can enter into contracts and own property in its own name, separately and distinctly from the business owner.

Some of the benefits of having an incorporated business are:

When you incorporate, you can leave money in the corporation as the company's assets and defer personal tax until you take the money out.
Tax savings include low corporate tax rates if your corporate income is less than $500,000 per year.
Additional tax advantages include tax planning opportunities through analyzing your business income and deciding how (salary, dividends, and bonuses), when, and how much to pay yourself.
You can choose your year-end for tax purposes within 53 weeks from the date of incorporation.

How to choose the right type of business corporation for your company

As a health professional, there are two types of corporations you can create, and it's vital that you choose the correct one for your business.

The Types of Corporations

a Professional Corporation or
a General Corporation.

How To Choose The Right Type Of Business In Canada

Professional Corporations are regulated by your regulatory body just like you are as a sole proprietor. It can only be incorporated provincially, and the articles of incorporation must be approved by your regulatory body before it starts to operate. A General Corporation cannot perform health services. This impacts how you collect income and the type of relationship you have with other practitioners who work as subcontractors to your practice.

Costs Of Changing Your Corporate Structure

The costs to change your corporation after the fact are high and include

Amending articles of incorporation (company creationformation documents)
Removal from federal registration
Filing articles of continuance in your province
Ownership structure
New bank accounts
Proper setup of your relationship with independent contractors
GST/HST registration implications

Make sure to get set up correctly from the start and seek out support from a professional if needed. An accountant may support you through this process and help ensure you don't miss any steps or make any mistakes.

Who will perform the service?

Under most provincial legislation, regulated health professionals have the option of incorporating their practice as a professional corporation.

While the framework legislation allows regulated health professionals to incorporate, it is important to consult with the governing body of your profession to ensure that it is permitted within the regulations and by-laws.

A professional corporation allows professionals to provide their services to clients through a corporate entity rather than personally. Review your provincial legislation and consult with your governing body to ensure you select the correct type of corporation for your business.

Who are the shareholders?

Professional corporations can only be owned by health professionals who are registered within the same regulatory body. This means that if you are a Naturopathic Doctor and want to open a clinic with someone who is a Registered Massage Therapist as 50/50 owners, you cannot use the professional corporation model. Some provinces allow for family members to own shares of professional corporations, so be sure to check with your specific provincial requirements before making decisions about your business structure.

What paperwork is required to incorporate a business in Canada

Each province requires different paperwork to incorporate your business. For example, if you were incorporating in Ontario you would need to include the following in your incorporation document submissions:

Two identical copies of your Articles of Incorporation (Form 1), which are your company formation documents, both with original signatures.
Ontario-based NUANS search (registered business name search) conducted no more than 90 days before your incorporation submissions.

NUANS is a computerized search system that compares your proposed corporate business name with other existing corporate names in the database and identifies similar or identical names to determine if you are able to use your proposed business name.
This step is not required when incorporating a numbered company, as your corporate business name will be a number.

A cheque payable to the Minister of Finance.
A cover letter with your contact information (full name, address, and phone number).
Any other supporting documents (i.e., legal opinion).

This process is fairly similar but can vary from province to province.

How to register your corporation with the CRA

After submitting your company formation documents and once your incorporation has been processed, CRA will issue a Business Number for the new corporation by mail to the registered address on file. You should receive it within 5 business days.

If you are required to register for GST/HST or Payroll accounts, you can do so once you get your Business Number by calling the CRA My Business Account phone support at 1-800-959-5525. While you call, make sure to get access to your online account CRA My Business Account by connecting your SIN to the new Business Number.

Maintaining Incorporated Businesses

Once incorporated, your work isn’t over. It is required by law to keep certain corporate records to maintain incorporated businesses. You will need to purchase a minute book which should include the following within:

Corporate Articles
Corporate Bylaws
Directors Register
Forms Filed with the Government
Notices and Resignation
Officers Register
Resolutions and Meeting Minutes
Share Certificates
Shareholders Ledger
Shareholder Register
Transfers Register
Debt Obligations Ledger
Shareholder Agreement
Ontario Real Property Register (for Federally registered corporations).
Individuals with Significant Control Register (for Federally registered corporations).

If this feels like a lot, it is. There is a lot of maintenance required beyond financial statements and getting a new bank account to keep a corporation up to date, and having the right professionals to guide you through the process is essential. You should have a lawyer and accountant helping you through this process.

Conclusion

Now that you’ve learned about what it means to be a corporation, the different types of corporations, the difference between corporations and sole proprietors, the tax benefits of incorporating, and how to register your corporation with CRA, the hard part of deciding if you should incorporate comes into play. The main reasons why people incorporate are to limit legal liability and tax planning. Once you know that incorporating is the right step for you, you are now fully prepared to incorporate, register with CRA, and maintain your new legal entity.

Still not sure if you should incorporate?

Don’t worry, you don’t have the make this decision on your own! Learn the best business structure for your business and how to set it up correctly with Business Foundations Incorporating: The blueprint to understanding the business structure options for your new health business.

FAQs on Incorporating a business

Q: What does incorporating a business mean?

Incorporating a business means creating a legal entity that is separate from its owners or shareholders. There are many pros and cons to incorporating, different types of corporations, and it's important to take in all of the considerations before making the decision to incorporate.

Q: Is it worth it to incorporate?

There were many tax benefits mentioned in this article; however, incorporating your business may cost you more than you save, so it's important to consider how much revenue you are earning, your company's long term growth, and how much money you plan on keeping in the corporation before deciding between incorporating or remaining a sole proprietorship. Access our free workbook to learn if incorporating will cost you more than it saves you! Access now!

Q: Does Incorporating Remove Personal Liability?

Health professionals that incorporate do not have the benefit of removing personal liability because they cannot operate as a general corporation, as general corporations cannot perform health services.