The Ultimate Guide on Business Incorporation in Canada

The Ultimate Guide on Business Incorporation in Canada

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This article will help you understand how to incorporate a business in Canada. I will tell you the benefits and disadvantages associated with incorporation, give you the step-by-step process of how to incorporate, and go over your other business structure options, like sole proprietorship, partnership and cooperative. 

Learn about incorporating in the United States

What is Business Incorporation?

An incorporated business (exact same thing as a corporation) is considered to be a legal entity that is separate from its owners and shareholders. Canadian businesses can be incorporated at the federal or the provincial level - and I'll go over the details on that further down. 
While incorporation isn’t legally required, it can bring a certain amount of legal protection for the business owner(s), potentially reduce your tax liability, and offer other benefits that can help your online business grow.

The Benefits of Incorporating in Canada

The primary benefit of becoming a corporation in Canada is the separation of your personal and business obligations. This means that you cannot be held personally liable for the debts or actions of the corporation. So, if your business goes south then your personal finances and assets are protected. You may not think now that you need protection against liability but what if you're a sole proprietor and a client holds you in breach of contract? Can you afford to put your personal assets at risk to satisfy any claims against your business?


Other advantages you should consider are:

  1. Continuous existence: A corporation has an unlimited life span; if you sell the business or shareholders die the business will continue to exist.
  2. Ownership of the business entity is transferable: Because the entity has an unlimited life span, you can sell your business or plan its succession easily.
  3. Raising money can be easier: Incorporated businesses can sell shares and equity to drive growth.
  4. Tax advantages: Each example is unique, but corporations can benefit from Canada’s small business deduction (16% on the first $200,000 of taxable income). You can also choose to defer certain tax payments and benefit from new tax laws or a lower tax bracket.
  5. Increase your credibility and business-worthiness: Many businesses won’t enter into sales or contract agreements with un-incorporated businesses. In which case, incorporation can improve your credibility and growth potential.

The Disadvantages of Incorporating


Money and paperwork. The process of incorporation and managing a corporate entity can be administratively challenging for many smaller businesses, requiring more paperwork and record-keeping than being a sole proprietor does.

It can also be a tax disadvantage to incorporate since you can’t claim any of the personal tax credits that you otherwise would as a non-incorporated business. 

The term “limited liability” is also something to look out for, for example, if the corporation applies for a business loan but has insufficient assets to secure it, the lender may well look for the personal guarantees from the business owner(s) – which brings with it obvious liabilities.

How to Incorporate Your Business in Canada

Step 1: Name Your Business

A lot of ecommerce merchants will already have a name for their online store or product. It's important to search to see if that name is available as soon as possible. If you don't have a business yet, be careful in deciding on a business name - it'll be with you for a long time (hopefully). Learn more about searching and selecting business names here

Step 2: Get a Business Number (BN) or a NEQ (Quebec only)

  • A business number is a 9 digit account number that will forever identify your company to federal and provincial governments. Register
  • A NEQ (Quebec Enterprise Number) is required if you're incorporating in Quebec. Learn more

Step 3: Decide to Incorporate Federally or Provincially

All businesses in Canada have the option to incorporate federally or provincially. Federal incorporation lets you do business under the same name in all provinces and territories, but it's more expensive and a little more work to setup and maintain.

Provincial incorporation is likely sufficient for most ecommerce business owners operating out of Canada. 

Step 4: Register for GST/HST

If your business does $30,000 or more in total revenue per year, you need to register for a GST/HST account. Many merchants with less revenue volunteer to register because once you have a GST/HST account you can get the taxes you pay as a company refunded by the government. Get your GST/HST account
If your business is registered in Quebec you need to register with Revenue Quebec
Note: When making the decision to incorporate, it’s always wise to seek legal advice before coming to any conclusions. Mistakes can be very costly. 

Other Canadian Business Structures To Consider 

As you weigh up the pros and cons of incorporation, remember you do have other options when it comes to officially structuring your business. Which one you choose really depends on whether you want to go it alone or go into business with partners or associates. 

Here are three other popular business structure options in Canada:

1. Sole Proprietorship

Very easy to setup and run, with the minimal amount of paperwork, sole proprietorships are by far the most popular structure among new ecommerce store owners. 

Essentially, a sole proprietor is not a legal entity (although you do need to register the business and obtain the right licenses and permits) and there is no separation of the business owner’s personal and business assets. 

Business taxes are paid on your annual individual income tax return, and you are personally responsible for the debts, actions and obligations of your business.

2. Partnership

Going into business with a buddy? Looking to combine financial resources? A partnership might be the right option. Like a sole proprietorship, there is no legal difference between you and your business, but that doesn’t mean you shouldn’t cover your bases legally. Be sure to draw up a formal partnership agreement with the help of a lawyer to protect both your interests and ensure you have a mutual plan for the dissolution or succession of the business should either partner want to move on. 

If the partnership is not equally split between partners, you might consider a limited liability partnership in the business which gives you profit-share but removes you from direct control or management of the business.

3. Cooperative 

The least common business structure in Canada, a cooperative is a business is owned and controlled by an association of members typically a group or people or businesses who team up to provide goods and services.

The Bottom Line

Remember, incorporation requires careful planning and the right advice. Not all businesses need to take this step and not all will incur the perceived tax benefits. So take the time to consider incorporation as part of your wider business goals – not just because the next guy tells you need to do it.

Also check out your region’s Business Service Center or Chamber of Commerce – these center’s offer information, seminars, and networking opportunities to help you make the right decisions about your business. 

Curious about incorporating in the United States? Check out our comprehensive guide on forming a business in the United States

33 comments

  • @Shopify Dylan Blanchard
    Dylan Blanchard
    January 04 2013, 11:01AM

    This is solid.
    Great guide for something that can be difficult to maneuver!
    Thanks, Mark!

  • @Shopify Mark Hayes
    Mark Hayes
    January 04 2013, 11:11AM

    Thanks Dylan! :)

  • Andrew Youderian
    Andrew Youderian
    January 05 2013, 01:09AM

    Fantastic resource, Mark! Will be sharing this as I am frequently asked how to get an eCommerce business going in Canada. As someone living in the U.S. I never had anywhere great to point people – until now!

  • Jessika
    Jessika
    January 05 2013, 07:23PM

    This is a fabulous resource! There needs to be more info like this focused on Canadian ecommerce-now all I need is a good list of lawyers in Canada who work for/with creative entrepreneurs. Any leads?

  • Richard
    Richard
    January 05 2013, 07:53PM

    Thanks for posting this mark.

    When I started I incororated in both Canada (where I live) and the US because our fulfllment warehouse in the US required a EIN number to ship form the US. I was recently told that I could have gotten a US EIN number without having a US corporation set up (Just having a Canadian Incorporation).

    Do you know if you can get a US EIN # with just a Canadian legal business entity?

  • @Shopify Christian Joudrey
    Christian Joudrey
    January 05 2013, 08:45PM

    Very informative. Thanks! :)

  • Yoosuf Muhamad
    Yoosuf Muhamad
    January 06 2013, 08:21AM

    great reference, since i am planing to come to Canada to start a startup.

  • Mark Hayes
    Mark Hayes
    January 07 2013, 09:37AM

    Andrew: Thanks so much!

    Richard: No clue – I’ll look into it and get back to you. It’s a very good question!

    Yoosuf: So glad you found it helpful Yoosuf! Thanks for checking out my blog!

  • George
    George
    January 07 2013, 09:49AM

    Make it for germany !

  • @Shopify Mark Hayes
    Mark Hayes
    January 07 2013, 10:34AM

    You got it George – I absolutely will. These guides take quite a bit of research though, so give me a couple months to put it together. :)

  • Coffee with Julie
    Coffee with Julie
    January 11 2013, 11:26AM

    I can only imagine how long it took you to compile all this info into an easy-to-read guide — I say “thanks!” Great resource.

  • @Shopify Mark Hayes
    Mark Hayes
    January 12 2013, 03:02PM

    It’s my pleasure Coffee With Julie – so glad you enjoy this!

  • Glenn
    Glenn
    February 25 2013, 04:20PM

    As someone that’s starting in e-commerce, do you think it’s wise to register as a sole-proprietor until the business starts to ramp up?

  • James
    James
    March 11 2013, 07:39AM

    Great Info. It is always better to consult any firm who can help you set up company in Foreign country. They will guide and help you to get rid of paper works. I am staying in Singapore I know some of them who help to setup company in Singapore like sbsgroup.com.sg. This Consultancy firm will help you and guide in formation a company in Singapore from end to end.

  • Michael
    Michael
    April 11 2013, 01:15PM

    I’d rather consult somelawyers in Newfoundland. You’d be wise to get a lawyer anyway, so why spend the time doing something you don’t need to be doing when you could do something else that you do?

  • Anna Coombe
    Anna Coombe
    April 19 2013, 12:25PM

    My Canadian daughter, living in Toronto, has recently asked me by e-mail (I am female, aged 78) if I will invest in a new business she is creating in Canada. Her latest e-mail to me (19th April) says she is federally incorporated. I am mightily impressed with the information you have provided on Shopify, giving me a much greater understanding of business structures in Canada.
    I would add that I am a UK sole trader owner of a business, for the last 25 years, although not an e-business. I converted briefly to a limited company when the UK tax arrangements made it sensible to do so, but converted back to a sole trader when those favourable arrangements were revoked. Such is life! But, anyway, thank you for your blog and its content.

  • Kishore Negi
    Kishore Negi
    April 21 2013, 09:01PM

    Anybody else please tell me about global navigation solutions company it is in canada. is it legal/company name/company old name/live ????

  • Brendan at Glancepoint
    Brendan at Glancepoint
    May 08 2013, 01:37PM

    Extremely helpful information for our Canadian customers. We’ll certainly be tweeting this out. Great resource!

  • Jay
    Jay
    May 30 2013, 07:16PM

    Thanks Mark … I am planning to register/incorporate my company in Canada/Federally … but this company would need to be interacting with US and other countries…. Would there be an addendum to the process you outlined?

  • Felina
    Felina
    August 26 2013, 10:38PM

    Super awesome guide ! The best so far ! One quick question; I’m a non-resident in Canada, planning an online business – dropshipping method ( for US/Canadian market) and most likely getting my stocks from China. Will I need an import license ( supplier from China sends to US/Canadian customers) or an export license ( I wouldnt think I would need this right since I’m not holding the stock ? ) ? Thx in advance for your feedback !

  • Radek
    Radek
    October 14 2013, 06:14AM

    You are forgetting to mention that if you do business from somewhere in Canada, you will need to incorporate provincially as well. And, there are rules as to who can incorporate in which province. Sometimes you need to be or have a Canadian partner in the business.

  • Brian
    Brian
    November 06 2013, 12:37PM

    Do you have to register your business in each province that you sell to if you are provincially incorporated? I will be selling online throughout Canada but my business will be based in Ontario and all orders will be shipped from Ontario.

    You mentioned that provincial incorporation is usually good enough for ecommerce. Just hoping you can clarify the reasons?

    Thanks

  • aAhmed
    aAhmed
    November 20 2013, 05:42AM

    Hi,

    Thanks for the article.

    I’ve got a question on registering a sole proprietorship. You know where it asks for a business address, what are we supposed to enter if a business operates online and doesnt have a physical location? Also, besides this form

    http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbforms.nsf/GetFileAttach/007-07219~1/$File/07219E.pdf

    and paying the fee, what else is required as a canadian?

    Hope you’ll reply. Thanks.

  • Dan
    Dan
    March 10 2014, 08:27PM

    Very good reference, Thank you very much

  • Justin
    Justin
    April 07 2014, 10:12PM

    great resource, thanks Mark!

    One thing, the Ontario Provincial Incorporation link is leading me to a 404 page, is the link broken?

    Cheers

    J

  • Pannu
    Pannu
    May 20 2014, 08:48PM

    Hi Mark
    I have few questions…….
    I applied for Business Number and got one, along with this i got GST/HST account. But in legal name i put my full name by mistake. Now under legal name document is displaying my name.

    Few days ago i applied for Business name registration ontario(partnership). I got email with attached document that is showing business registration number and business name(say NewCompany). I have not included any suffix like Ltd. etc. Now i want to incorporate business with same name.
    But i think adding suffix to company name is must while incorporating in Ontario.
    and what about business number?

  • Charles Pedley
    Charles Pedley
    July 09 2014, 07:52AM

    Great guide Mark. However you said it was MORE expensive to incorporate federally but in Ontario, if you incorporate, it costs $360 minimum to incorporate in Ontario. So what am I not understanding? What makes it more expensive to incorporate in Canada when you pay $200 online or $250 otherwise?

  • pbk
    pbk
    August 16 2014, 09:28PM

    Hi Mark/Anybody visiting this wonderful thread

    Firstly,Mark congratulations on posting exciting article.Thank you

    What if company is registered else where and I want to open overseas office in Canada. Appreciate if you could point me to a useful link or brief me on the same

    Thanks
    Prashu

  • Alan Dantas
    Alan Dantas
    December 09 2015, 09:36AM

    Fantastic!! Everything I was looking for. Thank you so much.

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  • Ronald Louissaint
    Ronald Louissaint
    February 08 2016, 01:30PM

    Thanks Mark,
    Awesome Guide.

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