When you start a business, one of the first decisions you have to make is whether to incorporate or not. There are several factors to consider when making this decision, including the costs and benefits of incorporation. This article will explore the various costs associated with incorporating in Canada.
What Is Incorporation in Canada?
Incorporation is the process of registering a business as an individual legal entity in Canada. The entity model benefits small businesses because it protects owners from personal liability, separates some of their private assets from risks associated with the business, and may also provide tax benefits depending on the circumstances.
To incorporate in Canada, companies must register with the provincial or territorial government where they conduct business. Depending on their situation, businesses may also need to register for additional permits or licenses from one or more levels of government. Incorporation applications typically require information about the owners, the type of business being registered, the financial structure of the company, and any capital that will be used to support its operations.
Once incorporated, each jurisdiction has laws governing how companies must manage themselves and report back to registration authorities. Then, with everything in order, businesses can begin operating within Canada as individual legal entities certified by their respective governments.
The Benefits of Incorporating Your Business in Canada
When it comes to starting a business, incorporating provides many benefits. Some key advantages are protection from personal liability, tax savings, and improved access to funding.
When a business is registered as a corporation, owners are not personally liable for its debts or obligations. This is especially beneficial to owners of small businesses since their personal assets are protected from any financial issues that may arise with the company.
Incorporation can also be beneficial as a tax savings measure. Depending on the type of company, corporations may be eligible for certain deductions or credits that can lower their income taxes. This could result in significant savings and provide more capital to reinvest in the business.
Improved Access to Funding
Incorporating your business can also enhance the chances of obtaining financing from creditors. Banks and other lenders have more confidence in companies that are registered as corporations, and they may be willing to offer lower interest rates or better terms.
Incorporation also allows for long-term planning. By registering as a corporation, owners can make plans for the future of their business and use different legal structures to protect themselves from potential risks.
What is the Cost to Incorporate in Canada?
The cost of incorporation in Canada depends on the type and size of the company, and each province or territory may have different fees. Generally, the registration fee ranges from $200 to $1000, depending on the jurisdiction. Additional costs can include legal fees for setting up corporate records, appointing directors, preparing documents such as bylaws or articles of association, and registering with the Canadian Revenue Agency. Companies may also need to set up a business bank account or register for various permits and licenses.
Overall, the total cost of incorporating in Canada can range from $400 to $3000, depending on the company's size and type. Although it is an investment that requires some upfront costs, the long-term benefits of incorporation can be worth it.
The Canadian Provincial Incorporation Costs
- The Cost to Incorporate in Alberta: Incorporating a business in Alberta costs $450 CAD, plus a name approval fee of $30.
- The Cost to Incorporate in British Columbia: The fee for incorporation in British Columbia is $350 CAD, and an additional $30 will be charged for name approval.
- The Cost to Incorporate in Manitoba: The cost to incorporate a business in Manitoba is $300 CAD. If you want a named corporation, there's an additional $49 for the search report.
- The Cost to Incorporate in New Brunswick: The fee to incorporate a business is $290 CAD in New Brunswick. This includes the government's incorporation fee of $260 plus a name search report fee of an additional $30.
- The Cost to Incorporate in Nova Scotia: Incorporating in Nova Scotia will cost you $200 CAD, plus an additional $70 for a name search report.
- The Cost to Incorporate in Newfoundland: To incorporate in Newfoundland costs $300 CAD and an additional $300 for a name search report.
- The Cost to Incorporate in Ontario: Incorporating a business in Ontario will cost you $300 CAD online or by mail. If you want to register your business name, there is an extra fee of $60.
- The Cost to Incorporate in PEI: The fee to incorporate in PEI is $255 CAD, which includes the government fee and the name search report fee.
- The Cost to Incorporate in Quebec: The cost of incorporating in Quebec is $356 CAD, with an additional $50 charge for the business name search.
- The Cost to Incorporate in Saskatchewan: If you want to incorporate in Saskatchewan, it costs $265 CAD and an additional $60 for a search report of named corporations.
- The Cost to Incorporate in Yukon: Incorporating in the Yukon costs $345 CAD. This basic government charge includes a corporation name search fee.
Canada's Federal Incorporation Costs
If you choose to incorporate federally, your business will have increased name protection and more rights to conduct business across Canada. If you only incorporate provincially, your business name is only protected within that province. When you incorporate your business federally, you can do business anywhere in Canada. It's important to note that you'll have to register your company in the province it is located in if you choose this path.
At least 25% of your company's directors must be Canadian citizens or have permanent resident status in Canada to federally incorporate. In addition, the starting fee for federal incorporation is only $200 CAD, making it more affordable than provincial incorporation fees.
Other Incorporation Costs to Consider
Aside from the initial incorporation fees, there are other expenses associated with running a corporation that you'll need to remember if you plan to incorporate federally or provincially.
One-Time Incorporation Costs
Not all provinces allow private sector firms to act as authorized service providers for incorporation, which means you would need to pay the firm you choose to work with for their services. Additionally, some business owners choose lawyers to take care of the incorporation process instead, which can rack up quite an expense.
A federal corporation must register in each province or territory where it will conduct business. Most provinces and territories charge fees for registering corporations, which differ depending on the location.
Lastly, a shareholder agreement defines the expectations and relationships of business partners, preventing any issues or disagreements from damaging the company. Most businesses have a lawyer draw up this document, typically costing $500-$1,000 CAD.
Ongoing Incorporation Costs
Every year, the government asks businesses to file an online return containing recent information on where the company is located, when its last annual meeting was held, its directors and officers, and other essential facts.
If you don't file your annual return on the anniversary of your business incorporation, you may be fined or face administrative dissolution. The fees are associated with this annual filing, which also differs depending on whether your business is incorporated federally or provincially. Not only will you need to file taxes for your corporation every year, but these are separate from the taxes you complete for yourself. The amount you pay for this service varies depending on who you choose to file your tax return.
In conclusion, incorporating your business is a long process requiring research and understanding the legal requirements. Furthermore, you need to consider the various fees associated with incorporating federally or provincially when making your decision.
It's crucial to weigh the pros and cons of each option before deciding which path will be most beneficial for your business in the future. Ultimately, it's up to you to choose whichever route best suits your small business needs.